Bitcoin: Vertical Price And The Liabilities Of Easy Money.

Bitcoin was vertical, almost reached 14K and is now showing a dramatic bearish pin bar at the time of this writing. Our aggressive swing trade long reached both targets overnight which is definitely not the norm. One of the basic tenets of technical analysis is: history repeats itself and this can be interpreted in many ways. The reason why history repeats itself is because human behavior (crowd psychology) doesn’t change. And right now, the order flow and euphoria pumping through Bitcoin is reminiscent of the mania around the time of the 20K peak. So what’s wrong with such a euphoric situation? It is full of easy money, but that is the problem: it is too easy. This is precisely where bad habits and ridiculous expectations are born.

We recently shared an aggressive swing trade with our members on a buy signal that occurred at the 11,175 level on Sunday. This was Andrews call and even I was skeptical about it reaching the first target, never mind the second. That was 3 days ago and Bitcoin at one point today was a 1000 points higher than our second target. And people still wonder why we have a rule in place that says: do not short this market.

There is no need to scour the internet as to WHY this is happening now. It doesn’t matter why, all that matters is what’s next. If you look around, you will see Bitcoin is now on everyone’s radar again, just like it was a year and a half ago when it was pushing toward 20K.

Charts Can Offer Realistic Expectations.

In situations like this, the first thing you need to have is a realistic perspective and a chart can provide that. The question I have is: what are the relevant support and resistance levels NOW in play?

Price structures allow for future price projections that are based on price history. Often when price enters a location where it has been before, the participants at those levels are motivated to take some form of action based on their relationship to the market. The details are beyond the scope of this article but the key thing to recognize is a change in order flow is a reasonable thing to expect at historical support and resistance levels.

At the moment, the 13400 to the 16215 area is a resistance zone that is based on the largest degree structure that accounts for the all time high and December 2018 low of Bitcoin. Along with that, the 13400 area also happens to be a historical support that dates back to January of 2018 which means it is NOW a new resistance area. History does not repeat itself in a precise way, BUT there is plenty of evidence that suggests previous levels do have a memory.

And that is where this market has found some serious selling pressure. IF the current candle closes with a long upper tail (candle wick), that may be a the reversal that initiates the next broad corrective wave sequence. This is only a possibility to be prepared for, nothing else.

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Bitcoin: Vertical Price Action Makes It Look Easy.
The herd mentality at its finest.

The next minor support is in the 12500 area while the next major support is around the 11400 area. Price has just tested the 12300 area in a matter of an hour off the 14K high. How many euphoric and emotional participants do you think are now caught from 13,500 because they could not resist the temptation to buy into the easy money? THIS IS WHY WE DO NOT buy vertical markets or highs.

IF the next corrective sequence unfolds, price can spend the next week or two ranging between the 13K area and can possibly test as low as the 9700 area. And this is where patience will serve those who can WAIT for the more attractive prices AND have the courage to take a position when the crowd is losing confidence (and their money). This is NOT a prediction, just a possible scenario that is within reason IF a reversal pattern is triggered within the current price location.

Have Your Heard Of Reality?

Reality is what takes place MOST of the time. From the Pareto perspective, that means 80% of the time, market behavior is balanced which means it is uneventful with occasional highlights (range bound), while 20% of the time it is imbalanced (also known as a trend). When a market goes from imbalanced back to balanced, the transition often begins with a harsh reaction. That is what we just saw as Bitcoin went from almost touching 14K to 12,300 in a matter of two hours.

These extreme movements are a liability to new traders because this is where bad habits come from. What bad habits? Buying into highs and getting a reward for it. MOST of the time, this will produce a negative outcome, no different than playing lousy cards at a Poker table.

Vertical price action is seductive and will reward you now, but will take much more from you in the future. It often reinforces a false sense of confidence, it bolsters over estimation bias and even inflates the ego to delusional levels.

Those who are not aware of or totally driven by their emotions will eventually donate their “easy” money to the more savvy participants who base their perspective in REALITY. This savvy minority has the flexibility and discipline to NOT be swayed by all the hype, nonsense and euphoria spread by the average herd member (who often masquerade as “experts”, “gurus” or some kind of “authority”). It takes YEARS (a lot more than 2 or 3) to gain enough experience to produce stable and consistent returns from a financial market, let alone a highly speculative and wild one like Bitcoin.

We often get criticized for missing these magical moves, but under NO circumstances will we change our decision making process.  It has served us and those who ACTUALLY follow us very well. Just look at our yearly performance records.

We write this often: Successful market timing has more to do with WAITING than anything else. There is NO such thing as easy money. Those who succumb to the madness of the crowds will only serve as a potential source of donations for the more experienced. Which group are you part of? If you recently got into Bitcoin and can’t believe how easy it is, my suggestion to you is take your easy money and run (if you haven’t donated it yet).

Questions and comments welcome.

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8 Responses
  1. jlhequities

    All eyes on BTC means no eyes on alts. Everybody short alts, plenty and plenty of alts have not been irrational and are beginning to break through major resistances. Will not be surprised to see alts take over the market soon. Especially as BTC goes into a consolidation period.
    History repeats itself like you said. Alts exploded after BTC hit 20k.

    1. Marc Principato

      Hi JLH, thank you for sharing. There are different players in this environment, along with a great deal more knowledge. Many of the alts are useless, and smart money knows this. No different than the Nasdaq .com stocks which the majority are no longer listed. Money flows to the current selection of coins for a reason and that is what we follow. IF a random alt coin gains traction, and meets our criteria, it will appear on our radar and join the list that we follow. Thank you again for response.

  2. smollers

    Hi Marc, good article as usual. I wonder what your vision is on the position strategy while reaching these vertical highs. Since there are no stop losses or take profits set in this strategy, do you set a predefined level at which you actually do sell all the holdings or would you just keep them even if btc would fall back to the lows? (looking back at the dec 2017 high, did you sell the entire portfolio then or did you keep the holdings and only shaved off a bit at the highs? How would you know/decide if to sell a large portion at such a moment?)

    1. Marc Principato

      Hi Sander, and thank you for you question. I always encourage investors to lock in partial profits on highs. You will never sell at the precise high. It is all about managing and reducing risk. We started our official portfolio in the hole in April 2018. You can see our transaction if you evaluate our performance record. Based on technical patterns, we make it a habit to take partial profits, while at the same time maintaining a core inventory. Investing is NOT an all in all out process. Since we are still bullish (even in the face of the current weakness), we look to replace the partial inventory that we sold at a better price. Our average price is 3900 by the way. This took an entire year of management to engineer. Make sure you understand that short term and long term strategies are completely different. Long term is all about cost averaging, buying at wholesale and selling at retail while employing risk managed capital indefinitely (until the fundamentals are no longer favorable).

  3. onurerbas

    Great article as usual, thanks. I don’t think that you are over-protective in investment, though I sometimes believe that you over-react to the herd, considering the fact that we all are earning money over their knee-jerk reactions. I also believe that taking the risks, even if they are very obvious might also produce profits. They might not seem logical, but that’s where the intuition gets in.

    My mom is retired, sits home all day and doesn’t invest in anything and she might be proud of not loosing money, but as it is said, that’s hardly called investment. Meanwhile I made %65 profit in last 2 weeks, when I bought from 8.700 level, while I was reading your article on 14th of June. Nothing logical, just a gut feeling produced that result. Nothing critical here, just pointing out something else as a source of knowledge, even it’s a primal instinct, blended with common knowledge.

    I still have my reasons to believe that, starting from this night BTC will rally once again to reach 15.600 level. Let’s call it another feeling. Hope I wont get nailed in the process. Time will tell.

    All the best,

      1. Marc Principato

        Nice job. We are waiting for the same level, but our reversal criteria has to be met before we can justify putting on more risk. Thanks again for sharing.

    1. Marc Principato

      Hi Onerbas and thank you for your perspective. Timing the market on feelings works randomly and rewards randomly, no different than a slot machine. You may have made an out sized return in two weeks, but there are two things that you may not be aware of: 1) this is an extreme situation (outlier) 2) The risk is very high. We focus on risk. Playing by feeling means you will likely get caught, and then hope the market will come back. In contrast, we have a process that tells us when factors are most or least favorable. That means we will be able to avoid large adverse moves CONSISTENTLY, while grabbing average profits over time. Everyone makes money by feeling in a vertical move, but what good is it when chances are you will give it right back when the market fakes you out? We capitalize on the motivations of the herd, while maintaining a defensive mindset at all times. Primal instinct is precisely why most traders do not perform consistently over the long term. The market is the best instructor, but it is also the most expensive (and that also account for the occasional rewards it hands out, just like a casino).

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