Bitcoin – Waiting for Strong Hands & The Gambler’s Mentality

Overview:

Bitcoin briefly sold off yesterday, but since has taken back the loss retesting the 3800 level where it has consolidated around for the past few days.  Was this a sign of further weakness in the near term, or simply noise? 

All to often new traders get caught up in the desire or impulsive nature to be in the market every day.  They see a signal and “boom” I need to be in!  No different than getting KQ suited at the poker table, but as strong as KQ may appear to be, it can also be a dangerous hand.  What does the price action here tell us about the strength of our hand and is trading here risky?

Bitcoin:

There are two key levels that add weight to whether we are looking at a possible long setup or short setup and they are 3860 and 3730 respectfully.  If Bitcoin can take out the 3860 level and or even retest the 4k level this would provide much evidence, that moving forward we can expect to hit 4250-4500 in the near to mid term.

The opposite is said if we push through and close below the 3730 level.  If this happens a retest of the previous low around 3350 would be in play, but there is also a support level in the 3540 area as well.  Seems like a lot of levels in a very narrow area right?

It goes to reason that we are still in a range bound market with the lower end being in the mid 3300 area and the upper level being around 4100.  For those that have followed us for some time, you probably realized we do a lot of waiting.

The move yesterday was quickly absorbed by the market, and because we have a pinbar formation may may think “ohhh here is my long opportunity”, yet this may have been simply noise.  We need more evidence which is why we simply throw this hand away even though there is a long signal here. Because of the long pinbar we have to be aware of a fake-out, or that guy that slowed played pocket aces!

Gambler’s mentality:

In our podcast on Monday (which you can listen to here) we went over the gambling mentality and what you can do to suppress this emotion.  Like playing poker, you often sit at the table throwing hand after hand away, waiting patiently to play only the stronger hands, or better hands in strong positions.  Trading is no different.

Nothing like getting KQ suited under the gun and raising preflop as the first to react.  However, what happens when someone behind you re-raises?  Do you just call or do you re-raise?  Now I know everyone plays poker differently, but I only call in this position.  Why?  Because I have to assume I am behind. Any under pair is slightly ahead and QQ, KK, AA, AQ or AK has me dominated.

These are the types of hands that can get you in trouble, especially if a Q or K hits the board, and because you are in an early position you do not get the opportunity to see how the other player reacts.  This is exactly what we have here with Bitcoin, and the spike down yesterday was that re-raise.

Feeling the Market:

So what do you do when the flop hits a King?  This is where I personally put out a feeler bet and see how the other player reacts.  Does he come over the top, simply call or throw it away.  How the player reacts both from reading the player, and how he bets provides insight as to whether I have the best hand or not.   Fortunately, with trading we do not have to risk money to see how the market reacts, it is simply on the chart.

If Bitcoin takes out the 3860 level as a bull I can assume I have the stronger hand here.  Not that it is a guaranteed win, but the market is telling me that the bulls have the upper hand.  However if the market takes out the 3730 level, this would provide some evidence that maybe my hand is beat.  Like poker there are numerous variables to the game, and there are still two cards to come.  In trading there is always a river and never forget that.

Gamble or Throw it Away?:

Taking a trade here is simply hoping you have the best hand.  When you are hoping, you are likely in a hopeless position and this is where you are prone to gambling.  The other emotional trait we all have is the impulsive nature to “be in the game” regardless of the market conditions.

There is no reason to be in a long or short trade here, no different than playing 8-6 off suit in a middle position.  You have no advantage, you do not know what the player behind you is going to do, and same goes with the market.

Summary:

For those that have followed for a while, you know we are patient with trade calls.  We do not push 10% a week or $2500 a day with bull crap trading strategies that work when the market is perfect, only to give it all back when it isn’t.  Heck you only get pocket aces so many times and those claiming to get them hand after hand are simply bluffing.

Markets love the gambler because gambler’s lose their money.  There is simply nothing to do here until the market reveals its hand.  Our plan and strategy is simple, let the market determine whether we enter trade positions, not our emotional impulsive nature to be in the game.  Every day is a new hand, and what determines successful trading over the long term is learning to throw cards away no matter how they look when we peek!

Image by Chris Liverani on Unsplash

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