Bitcoin update: After another “dramatic” sell off from the 6400 area, price seems to have stabilized around the 6200 area. Once again, this price action translates into “nothing”. Bitcoin is still very well within both the bullish and bearish boundaries of the painfully long consolidation. This also serves as yet another lesson for those who “react” to market information. A great game that can teach many lessons in this department is Chess.

Learn Chess

Many years ago when I was a NASDAQ day trader, something unusual would happen around lunch time in the office. Once the market got slow, a large number of traders would whip out Chess boards and start playing.

At first, I thought this was just what these guys were into. The guy that I was sitting next to would also want to play Chess. I had absolutely no experience and after a few games, this guy told me that I was not enough of a challenge. He would not play me anymore until I read a book or improved my game.

I thought, it’s just a game, why is this guy making such a big deal? We are here to trade, not play board games. Then after a number of years, the light bulb went off: they were conditioning themselves to anticipate rather than react. Sound familiar?

What makes a good Chess player? Someone who can think many moves ahead of their opponent. With such a skill, they can lure their opponent into giving up key pieces early and dramatically reduce their chances of winning.

Anticipating

These traders were playing Chess to improve their decision making skills as it related to day trading at the time. And that philosophy is still relevant today. The key difference is: instead of thinking ahead of your opponent, you are thinking ahead of the entire population of reactive participants in your chosen market.

The herd as a group is a reactive force on prices. It may not be possible to anticipate every movement, but there are situations where they have little choice but to react one way or the other. Those are the high probability setups that we so patiently WAIT for. And by evaluating predetermined levels for particular patterns and setups, we are better able to ANTICIPATE, NOT REACT.

Bitcoin Chart Update
Bitcoin: So far the fake out continues.
Stop Reacting

Every time one of these dramatic “sell offs” occur, we watch the short interest spike. These reactive traders are accomplishing one thing: providing the means for the large players to accumulate more.

If this market was really weak, or really as “bad” as all the herd members keep screaming about, it would be below 6K by now. Especially with the “Tether Conspiracy”, oh wait, that’s been forgotten about. Again. Especially since the spread between Bitfinex and Coinbase has narrowed to a little more than 50 points.

As long as price manages to stay above the 5700 area and below the 6500 area, it is safe to say: IT IS GOING NO WHERE. The key lesson here is NOT to get sucked into any hype, negative sentiment or over reactive nonsense being spread about by marketers parading as authorities.

New member? Read a recent Bitcoin analysis here.

Watch The Supports

What lesson can we apply to this situation from Chess? WAIT for the levels where price is more likely to behave a particular way. In other words, wait for a level where you can ANTICIPATE how the herd will react. If the market never gets there, then have a Plan B. The objective is to always be prepared for a variety of market scenarios.

For us that has been the low 6Ks. We have been writing about it for months. If Bitcoin never really gets back to those levels, that is okay too. We are willing to accept the risk at higher levels IF the structure fits our selective criteria. Either way WE HAVE A PLAN for our short term AND long term strategies.

This decision making process has resulted in 2 small losses (swing trades) since August. It has also helped us filter out dozens of fake outs, and losing trades from this hard money environment. Ask some of your more active friends how much they made for October. You probably won’t get a very enthusiastic answer.

Don’t Lose Sight

When it comes to looking ahead, do not listen to anyone, and instead gather your perspective from a long term chart. Very large players are quietly accumulating because they most likely have much better information than we do. They can use their power to shake out the weak and lure the ignorant (shorts), but they cannot hide the effects of their collective operations.

Bitcoin has maintained a long term support zone this ENTIRE time, while the majority of the alts have not. This zone extends as low as the 4900 area. So IF price probes into the mid 5Ks, as bearish as the herd will be, we will be evaluating it as a buying opportunity. We can’t say that price will retest these levels, BUT we are PREPARED. That’s how you anticipate.

Stop Thinking Behind

Reacting to market information is equivalent to making decisions based on obsolete information. The traders who prepared are the ones exiting while you are just getting around to entering.
Using things like any oscillator (RSI), listening to news, or worse listening to someone posing as an expert will result in the same outcome: a shrinking account.

How do you anticipate? You can begin by using forward looking tools that project, rather than process information 20 periods ago. The simplest tool? The trend line. A more complex tool? (for those who love to complicate things) Elliott Wave.

We may not be playing a single opponent like in Chess, but the skill is the same. Learn to be STEPS ahead of the herd. Plan for their reactions, and then let them prove their intent. The ability to anticipate along with thoughtful risk management is the foundation toward long term success in this game.

Comments and questions welcome.

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