Bitcoin has now pulled back to the lower support of the broader term trend channel. Though there is still potential for Bitcoin to move lower this is close to is the final leg of the 4th corrective wave. Though we have been slowly been adding throughout the pullback, at these levels I am looking to start putting more capital to work. Not with reckless abandonment, as we can always move lower, but increasing my allocation.
Part of our long term strategy is trimming out into large rallies, and buying back into weakness increasing inventory. This is not a get rich quick, investing method. We initially trimmed out inventory back in December of last year and as the alt coin market rallied into February we trimmed out there too. We simply took off some profits there, in the event the market pulled back. At that time nobody knew, which is why we went to 70% in the market 30% in cash.
Regardless of all the chart prophets out there, it is simply speculating and guessing where and when we hit bottom. Though there is no test or method that can spot a bottom in foresight, the lower we pullback and the more people that get discouraged, the more aggressive I become with positioning.
I do not want to buy when everyone is cheering for a summit; I want to buy when everyone is screaming “this is the end”. This is exactly what I plan on doing, but with caution. You never want to exhaust capital while the market is correcting.
Bitcoin has pulled back not only to the lower broader term trend channel, it has pulled back within wave 4 in the previous impulse cycle. Though it does not have to pullback this far it is quite common. Keep in mind there is no guarantee we do not pullback further, but this is an area I am looking for longs more aggressively.
In the long term, not next few months, my position is that Bitcoin retests the previous high, or pushes up towards the 27,000 level. Again this is a 3 – 5 year target level, and I am willing to hold this long.
This is the mentality of larger institutions. They are not buying for 3-6 months they are buying for 3-5-10 years. Yet this requires you to believe in the long term viability of the space, stomach corrections, and not focus on the shorter term noise.
Nothing has changed on the daily candles chart. Bitcoin is attempting to push through bearish trend line and whether this is an initial impulse move or a continuation pattern is yet to be known. This is where we exercise risk management in positioning.
As we mentioned we have a Buy Limit Order entered, and as the structure starts to mature we will assess and adjust to the market. Bitcoin needs to push through, close and continue through the 4650 level for us to consider a bullish reversal is likely occurring.
The current bar may draw some excitement, but it is still too soon to draw conclusions. As a long term investor I add a small amount of capital monthly to my cash position, and during pullback I add inventory. Since we use a capital cost averaging method, during bear and horizontal markets, our average share price in the long term is lower. No guarantee as if the market reverses, we will be cost averaging up.
You have 8750 to invest so you break it into quarter BTC purchases. If you buy a quarter Bitcoin at 12.5k, 10k, 7500, 5000 your average coin cost is 8750. Using the capital cost averaging method in lieu of share cost averaging the same amount of capital allocation can make a difference.
In lieu of buying a quarter of a bitcoin at those levels, you buy $2187.5 worth of Bitcoin at those levels. In the end you own 1.1232 Bitcoin and your average cost is 7790. This is very close to your second to last purchase. One more purchase at 3000, you would have 1.85 BTC and your average cost would be $5911.
This is why we allocate capital and position with a % of our capital, not buying a certain amount of inventory at every level. Now to be clear there is a downside to this. IF Bitcoin reverses before it gets to your lowest level, it works against your cost averaging.
Someone I know will say “why not just wait for 3000 to buy, it’s a bear market stupid”. Fair point but experience has shown that most trying to time a bottom, seldom step in.
Those that have cold feet end up out in the cold more often then not. They keep waiting for perfect price. Eventually when the market reverses, they start thinking “ohhh it will pullback”. Then they fear they are missing out and buy right into the FOMO.
Need to look no further then the 2016 stock market. Analysts were expecting a 50% pullback. A pullback happened and those analysts kept talking further, well now we know the market bottom around 18% no where near the 25-50% pullback expected, and has gained nearly 40% since.
At that time they nicknamed this the “most hated bull market ever”. In other words many were waiting for another pullback that never happened. From November of 2016 the market went vertical pretty much in a straight line to 2800.
Fishing for bottoms often has one missing out in great gains. Even if the S&P today pulled back 50%, from its highs, it would be still higher than the levels they were calling for back in 2016 let alone 2012. You were better off buying the top in 2009, adding into the dip and cost average down then waiting for the perfect bottom.
This chart is exactly why people do not get back in markets. It is also the reason there is an extraordinary amount of cash still on the sidelines. Now this does not imply we can’t pullback. Yet clearly you were much better off putting your discretionary cash to work in the market, than attempting to be a market timer.
Is the Bitcoin market any different? Well if you believe in the long term viability of Bitcoin look at the S&P chart and ask yourself, am I going to try and be the perfect market timer, or take advantage of deep selloffs?
Of course we always look to take money off the table as we did recently with Apple and Cisco. We are looking to allocate this capital in other stocks that are beaten down using our options strategy. I do not want to be in stocks everyone likes, I want to be in good stocks everyone hates.
Most people are short sighted only thinking of quick gains getting frustrated and discouraged when markets move opposite they thought. Money is not made buying the highs; money is made taking advantage of the lows. Can we move lower, sure we can, we always mention this. Nobody knows where a bottom is but the market. Market bottoms are only observable in hindsight not foresight.
Just look at all the analysts calling for bear markets as we continued higher. And these are not kids on trading view, these are economists and professional market analysts. Yet someone like Warren Buffet just stays long the market, and accumulates cash to buy corrections. This is probably the most time tested way to invest, not being the perfect market timer.
In the long term, I believe in the space and that Bitcoin retests the previous all time high, or even pushes higher. Since this is discretionary monies, I have the ability to wait out the noise, further selling pressure and even a potential collapse.