Bitcoin update: How much longer do we have to wait? Is there such a thing as too long? The purpose of this article is to address the challenge of adapting your decision making process to the nature of the environment. Knowing how to “change your color” (like a chameleon) along with a focus on conserving capital is how to stay in the game while your friends churn themselves into another hobby. Binary options anyone?

Market Chameleon

When I think of adapting to a market environment, a chameleon comes to mind. It is not the most clever metaphor, but serves to illustrate my point. A chameleon changes color to “reflect its mood”. It gets darker to show dominance in the face of a rival or it gets lighter to attract a mate. In a way, it adjusts its color in response to information in its environment.

For those who are “aggressive” or who “make things happen”, adjusting or taking more of a “passive” stance may seem like a form of weakness. As uncomfortable as it may feel, the more effective relationship to have with the market is the leader-follower.

The market is a force of nature, a collective force of decisions that are propelled mostly by fear. And even though Bitcoin may be somewhat tamed by large players, we must still accept it as “right” even if we do not agree (if you seek positive performance). You do not argue with the ocean, you build a sail and utilize the wind. The market is the leader and we are the follower.

This is the mindset of a “market chameleon”. Instead of adjusting our strategy to attract a mate, we adjust to better align with the probabilities of the environment. (And if you make some money, you can probably attract a mate also, at least in New York City).

Bitcoin Chart Update
Bitcoin: About to squeeze? Again?
Quiet Price? Do Nothing

We have been sitting in a swing trade long for 8 days. It has been in our favor, and in the red numerous times. The risk is defined and either it is going to get stopped out or reach its targets. It’s NOT up to us, IT’S UP TO THE MARKET.

It is about what the market is NOT doing just as much about what it is. One thing we always do that helps us adjust is we constantly ask questions like: has the price structure changed in any meaningful way? Is the new configuration a pattern of strength or weakness?

No matter how negative sentiment is at the moment, price refuses to close below 6300. THAT MEANS SOMETHING. It can change, but until is does, we go with the flow, NOT SECOND GUESS. The only source of high quality information we have is price, and we trust it.

New member? Read a recent Bitcoin analysis here.

Too Long

We had a swing trade long previously that got stopped out a few weeks back. That makes our current trade only the second one in this market in about a month. We lost something like 2% while many we hear about have lost north of 30%. How much must you lose in order to acknowledge that this is NOT the environment for active trading?

For us there is no “too long” to wait. We will wait for as long as the market requires. This is recognizing the environment and adjusting to it. It calls for defensiveness and the best and easiest strategy we know of is to be extremely selective and small. You are better off out and waiting, than to be constantly jumping in and hoping. Stop following the blind.

You Want Action?

There is a TON of action in other markets like? The stock market. The forex market. Especially on the day trading front, but you need experience and money to trade.

Do not force trades where there aren’t any opportunities. It may sound repetitive, but why would you go fishing in a desert? If you can’t trade other markets, then do yourself a favor and LEARN to WAIT IT OUT.

Consolidations Break

Bitcoin and all of the alts are in narrowing consolidations. The only time to really trade these are in extreme situations and you really need to have a good handle on how to define extreme.

One of our strategies is to buy into extreme lows if the opportunity presents itself. Andrew did exactly that at 6100 in the face of what looked to be the sell off of the year, only to fake out and go back to 6400.

If price closes above 6500 (Coinbase) it will likely squeeze to 7K. If it closes below 6300, it will likely test 6K or lower. A news event or some other surprise will likely spark the move and it will happen fast.

The Alts

The entire space moves as one market. It is all correlated. Until the other coins can prove themselves, they depend on Bitcoin to lead. Buying a bunch of alts at this point is no different than buying more Bitcoin with different degrees of potential.

We are interested in some of them like BAT, WABI and ELA. Again, these are highly speculative and depend on Bitcoin to recover.

The best way to get into these is INCREMENTALLY. That is another word for SMALL. Small is not sexy, BUT IT WORKS. Have $300 to invest? Accumulate with $50 purchases over a RANGE of prices. If there is a broader recovery (and we believe there will be one) there will be PLENTY of opportunity to build. Let the ENVIRONMENT prove friendly and worthy of taking greater risks. Not some “guru” claiming there is action. And make sure to lower your excitement gauge to something like 10% profit over a month. Not 20,30,50% or more.

Art Of Flexibility

If patience is the number one trait of a successful investor or trader, flexibility has to be number two. Flexibility is about knowing when to be aggressive or defensive. It is about adjusting your decision making process to be more in line with the level of potential or risks that are always changing.

Aggressive traders give back most of if not all of their profits during range bound markets. Conservative traders miss out on the “easy” money available in strongly trending markets. Which one would you rather be? The flexible trader has no preference, they let the market determine their answer.

Questions and comments welcome.

 

 

 

 

 

 

 

10 Responses
    1. Marc Principato

      Hi Jlh, great observation. I just realized I called you JBL in my recent article. The Dollar correlation makes a lot of sense and many retail traders in this space will not pick up on such a relationship. Thank you for sharing. I have to correct my recent article. Hehe.

  1. jlhequities

    When the USD has been gaining 2-3% a month there’s no reason to buy anything else. When the USD starts losing 2% a month is every reason in the world to start buying something else.

    1. Marc Principato

      Thank you for the compliment. I am glad you find it helpful. Flexibility is a skill that takes time to develop. It is not something I learned from a book. I have become more flexible as a result of learning how to utilize clues in order to build a perspective and understand what motivates order flow.

  2. Anandha Keanu Loustau-Khaou

    Hi Mark,

    Thanks for the article. I’d like to ask if you believe the narrative that Cryptos is uncorrelated to the stock market? Do you believe those claims hold any merit based on the price action we’ve seen this month between crypto and the traditional markets?

    thank you!

    1. Marc Principato

      Hi there and thank you for your question. At the moment I believe the stock market and Bitcoin are feeling the effects of a strong U.S. Dollar. Rising interest rates are part of the reason why the stock market is a lot weaker than previously thought. Bitcoin also trades against the Dollar, and as long as we are in a Dollar strong environment, the entire space will be unfavorable. Thank you again for your question.

  3. brucemcl

    I have been surprised by the very tight range that BTC is trading in. When the difference between the high and low of the day is less than $100 (more like $50 today), it finally feels like we’ve perhaps reached some semblance of rationality where you don’t get your face ripped off in an hour or two, so it feels a lot safer than it did a few months ago. I agree that patience is the name of the game here and sooner or later, we’re bound to see some larger moves. Thanks for the advice, Andy!

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