Bitcoin: The New Cure For Insomnia?

27. Jan. 2019

Bitcoin update: Besides the minor sell off during the beginning of the month, this market has been one big non event. Gyrating between the 3700 resistance and the 3450 support, short term opportunities have become very infrequent. In tight consolidations such as these, there are really only 2 scenarios to choose from: buy into the fake out at support, or WAIT for a decisive break out and then look for continuation patterns. Otherwise, this entire space is out of play, and out of play does not pay.

One of the best lessons to learn about market timing is always trade markets that are moving. There are plenty of alternatives at the moment. The British Pound, S&P, and Gold offer opportunities on multiple time frames. With all the political drama circulating, money is flowing on both sides, long and short. Out of these, forex is probably the easiest to participate in since it does not require a ton of capital to get started. The point is, do not waste your energy trying to squeeze money out of markets where there is no money flowing.

Until Bitcoin begins trending higher OR lower, the best thing to do is watch and wait. We tried buying some break out attempts earlier in the month and only got stopped out because of the lack of follow through . This is why we have adjusted to waiting for support around 3450 or extreme support around the 3200 area to be tested before getting back in for any swing trades. Patience in these environments is key to coming out ahead in the long run.

In terms of the break out scenario, price needs to close above 3700 without any swift pull backs. This is a tough one to sit through because the fear of missing out usually runs high. The least effective thing to do is buy the break out and hope it follows through. The more effective thing to do is let it break out and wait for the next continuation pattern which may be at a higher price, but at least there is some form of confirmation toward further strength. Although both scenarios offer some form of opportunity, we prefer the buying near the support at this point because the reward/risk is more attractive.

It is also important to keep in mind that any serious break of the 3400 or 3200 levels without any swift recovery means 3K is likely to be tested again. It can happen, just like the break at 6K. Do not forget that this market is unregulated. Large players have the ability to do anything they want without any regulatory risks. For example, stop hunting is an old market maker game that is perfectly legal in this space. This is especially common is low volume environments. The only way to not get caught up in this is to WAIT for a better environment.

Although things are different in terms of fundamentals compared to 2014 to 2016, Bitcoin was relatively stagnant for TWO years before the rally to 20K began. The best time to get into a market is when it is hated and forgotten about, NOT when it is pushing new highs. Even though Bitcoin can drift lower, now is a good time to expand your knowledge on what drives these markets. Capitalize on the quiet time to learn about the psychological elements that drive the herd mentality instead of being driven by it. We are all hard wired by evolution to react to information in uncertain environments, and we tend to oversimplify and grasp at the obvious. Once you recognize these behaviors in yourself, it becomes easier to recognize them in the price action.

In summary, Bitcoin and the entire alt space is out of favor. It is hated, and out of play. No action means the opportunities to profit, especially over the short term are extremely limited. If you do not have the ability or the interest to participate in markets where the money is flowing, then at least use this quiet time to familiarize yourself with the psychological drivers that move all markets. There are decades of research conducted on the elements of cognitive bias that lead to irrational investing decisions. Sure, it is boring, and is more likely to serve as a cure to insomnia, BUT it will pay off when new money comes roaring back into these markets. New money means more ignorant, irrational and reactive investors and they provide the source of liquidity where easier profits are generated from.

This is the nature of all financial markets. Forcing trades in a market, especially one that is easily dominated by professionals is like trying to squeeze money out of a Poker table full of tight players. You can still win based on the probabilities, but you will most likely get more enjoyment from watching grass grow (and then smoking it).