A wild week it has been between the U.S. Dollar, economic news and the Bitcoin ETF catalyst. The movement, especially in the Bitcoin space is a positive since it signals an improving environment for short term and long term trades. Whether you swing trade or invest, the best lessons come from real trade examples no matter if they are a profit or loss. In this email we provide trade reviews for our recent LTC, EUR and S&P 500 trade ideas.
Today is the beginning of an important change in the Bitcoin world. A piece of very positive news in terms of the near future was released. The SEC said, “A Bitcoin ETF will eventually be approved.”. Why is this so important? It means the potential for the next wave of big investing is on the horizon.
When the main stream investor and average hedge fund have the ability to invest with the security and peace of mind that comes along with an ETF, that is a recipe for herd mentality 3.0. ESPECIALLY into a market that has retraced 70 – 90% from its peak.
The space went vertical which was lead by Litecoin. And that is the first recent trade that I want to review.
LTCUSD Trade Review.
On Feb 5 at 5:25 AM ET, Andrew posted a chart in the Expert Swing Trade chat. It was an aggressive trade idea for Litecoin. We chose not to take the trade because we had an active swing trade in Bitcoin and preferred to stay within our risk constraints.
The trade information is on the chart (horizontal dashes). Blue is the entry, green is the target and red is the stop. This trade had a 3 point target which would equate to roughly a 10% gain if reached.
The trade triggered and reached its target within hours. What can we learn from this example? First, it was a highly aggressive trade. Why? The trigger was around the 34 resistance area, a historically tough area to break. On top of that, with Bitcoin being so uneventful, where was this market going to get the motivation to hit a 3 point target?
Never the less, there was a trade trigger and we recognized it, along with the risk of a fake out, and shared the idea. The price went into the mid 40s upon the news.
Lesson: Aggressive trades do pay off from time to time, but they are tough to take. There was no way to know this news was coming out today, but the chart presented a clear reason to buy 3 days EARLIER.
This doesn’t mean that you should jump into every aggressive trade now, but learn from it. If you can handle the risk, even by taking a smaller position, be open to consider it. Notice how once it triggered, it never looked back. That is how a strong catalyst, combined with too many shorts affects a market. Pure momentum, no noise.
So if instead price attempted to break out, but instead reversed and closed weak, and you bought into that as a swing trade, should you stay in? That is a question you need to be able to answer decisively.
Now that Bitcoin and the space got an injection of optimism, we will be looking for momentum continuation and the development of a broader bullish trend structure. Also note: the weekly high was taken out which serves as more confirmation that a broader bullish movement is in play.
Notice the mid 40’s resistance zone. That is the reference point for our next trade targets. As far as support, a retrace back into the mid to higher 30’s is the area we will be watching carefully for continuation patterns for swing trade longs.
EUR/USD Trade Review.
After the U.S. Dollar rallied hard this week after economic news and China trade drama, the currencies that the USD counters sold off significantly. We tried to capitalize on this further by looking for momentum continuation patterns.
Our EUR/USD trade triggered and we exited early for about a 12 pip loss. Why? The chart was still pretty much bearish?
When a momentum trade triggers, there should be NO signs of reversal, especially within hours of the entry and EVEN MORE especially on a Friday. Taking a trade into Sunday carries even MORE risk. So next best thing to do is get out for a small loss.
Remember SMALL LOSSES are how you make money with short term trading strategies. It may sound like a contradiction, but it is no different than throwing away the blinds at a Poker table. For those who are not familiar, “blinds” are forced bets that you must make on a regular basis while sitting at the table. It is the cost of doing business and stimulates action for other players to bet against. Occasionally you may have good cards and can lead to more betting rounds and a possible win, but MOST of the time, you get garbage cards and the money you were forced to bet is a SMALL LOSS.
In trading, no one forces you to place bets and you don’t lose money by doing nothing. You set your own rules and decide when you want to bet which makes it much better than Poker (except if you lack discipline and force your own trades). The point is this: in short term trading strategies like swing trades, you must be able to accept a string of small losses with little emotion because 1 winner should consume multiple losses.
That is why we exit early. A small loss should be viewed as a win, especially when a winner is 2 – 3X greater. We lost like 12 pips on the EUR/USD trade. Next week if we get another signal to sell, we will get back in, especially since it closed so weak. If we make 20 pips or more, we make back our loss and then some. If you can’t handle these small losses, then you are better off investing over the long term (BUT you will be exposed to larger pullbacks which means you have to be smaller in size). Can you handle 3 or 4 small losses in a row? We do plan to share more aggressive trades, especially in the CFD space, so make sure you understand this concept before if you intend to participate.
S&P 500 CFD Trade Review.
We have been increasingly bearish on the S&P 500 even though it has been making nothing but new high after new high in recent weeks. Why are we bearish? Price location. The stock market has been pushing a major historical resistance and the higher it goes, the greater the probability of retrace.
So what happens? News this week: China trade negotiations have not made as much progress as previously reported. Hmm. The stock market which was in a very vulnerable area for selling, gets? Hammered. 30+ points off the S&P high is a lot for this market.
What can we learn from this? Always pay attention to location.
As a result, we attempted to take a momentum continuation pattern to go short at a break out around 2685. It went about 5 points our way and then? Reversed.
This is a chance you take with momentum continuation patterns. Again, just like the EUR trade, the key to these is getting out quickly if wrong.
The S&P went from pushing lows to closing strong and forming a daily bullish pin bar. NO reason to stay in this trade, even though our stop was about 45 points higher. So we exited for a 10 point loss. IF a momentum trade is NOT behaving properly shortly after entry, take the small loss. Most of the time, it is the better choice.
We do plan to get back into the S&P 500 CFD short, but we will WAIT for the next signal. Why not long? Hopefully you answered: because of the location.
Real Time Trade Reviews?
Understanding the reasoning behind our trade decisions will help not only develop your own process better, but also build confidence when it comes time to participating in new trade ideas.
This trade review is meant to provide some perspective on our style and help you learn key concepts for success when it comes to shorter time frame strategies like swing trading.
We are planning to take these “trade reviews” a step further by conducting an interactive webinar where we can demonstrate the lessons and you can ask questions in real time. These special webinars will be available to our Premium and Expert Swing Trades members ONLY.
Also for those who haven’t heard: Steve Lubka, a fundamental expert on the blockchain space will be our guest on Monday’s podcast. Use this as an opportunity to ask him anything related to your favorite alt coins. Email us your question in advance: [email protected]
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