When it comes to our swing trade strategy, it has been Bitcoin for months, along with some forex and CFD trades. Where are the alt coins? Why do we prefer Bitcoin over Ethereum and Litecoin? The reason is technical and it becomes very clear when you compare these markets. A chart is a record of order flow, which also serves as a visual representation of WHERE the money is going. Money rotates in this space, just like it does across sectors in the stock market. And since our swing trade ideas require price momentum, it is in our best interest to risk capital in market environments that are more supportive.
Hopeful Or Realistic?
From a technical standpoint, Bitcoin continues to dominate the space in terms of relative strength. And as a short term market timer, if I am going to justify taking a risk, I want to do so in the most supportive environment possible. In this article I will explain why our swing trade ideas have been focused on Bitcoin in recent months. And along with that, what needs to happen in the alt coin space to regain our attention.
When it comes to timing markets, many traders and investors want to feel secure, informed and empowered. So what do they do? Consume tons of fundamental information about their investments, and then make the mistake of thinking they can also time markets with this knowledge.
In case you still don’t know, ALL financial markets are governed by greed and fear. These emotions are shaped by all kinds of information, not just fundamentals. And over the short term, fundamentals mean even less.
The flow of money is what determines REALITY. Capital flows out of markets that have little to offer while it flows into where all the perceived potential is. You can argue all day long about why your favorite alt coin has merit, but it means nothing if capital is flowing elsewhere.
Have you heard our podcast? We cover everything from Bitcoin trading to investing in stocks and even forex ideas. Check out our library HERE.
Relative Strength Favors Bitcoin.
One reason why capital flows to high potential markets is because SMART MONEY has better information than the average retail investor.
Notice on this comparison chart the select alt coins were pretty much in line with Bitcoin until the July retrace. Since then, Bitcoin has been supportive while the alts continued lower. This visual example represents RELATIVE WEAKNESS on the part of the alt coins.
IF Bitcoin retraces sharply, the alt coins should perform even WORSE from this technical perspective. Why would we want to put capital at risk in a market that is likely to go nowhere and then lose value faster when a sector wide retrace unfolds?
If you are NOT the CEO of Coinbase, then chances are you are NOT as informed as you think. Smart money has connections to inside sources that can provide NON PUBLIC MATERIAL INFORMATION. As a result, many of these large players have a much more accurate idea of what the future of the space looks like.
They most likely know political event dates, can confidently engineer favorable moves (fake outs) and take full advantage of erratic herd behavior. All this with much less risk. Do you think the capital leaders in this space read analysis on websites like Tradingview?
It is their capital that moves markets. And if their capital is flowing out of the alts and into Bitcoin, THAT MEANS SOMETHING. This is why we take whatever opportunity we can to reduce our alt coin positions and rotate that money into Bitcoin (which is separate from our swing trade strategy).
It is this observation, (relative weakness) that has prompted us to avoid alts altogether while others still HOPE for a delayed come back. This is also why our portfolio is much healthier than most (it’s green).
Bitcoin: Don't Be Fooled By Small Time Frames.
Bitcoin continues to hold the 9750 area support. In terms of swing trades, this LOCATION presents a high probability area to LOOK FOR LONGS. Why?
If you follow very short term analysts (2 hour charts), they would have you believe Bitcoin is now trending to the bear side. Here’s what they are missing: Since the June peak of 14K, Bitcoin has been RANGE BOUND. The low of this large magnitude corrective consolidation is 9K.
In a range bound market, probability favors buying near support levels and selling near resistance levels. You just have to be organized enough to recognize what kind of market you are in, and where the favorable probabilities are located.
It just so happens that the 9750 level is not just near the range low, it also happens to be the .382 retracement level relative to the ENTIRE Bitcoin move from 3150 to 14K. This carries a LOT of weight. And as you can see, price has found buyers in the area once again.
Since many do not understand the effect of magnitude and time frames, they are fooled into believing all chart information carries the same weight. A pattern on a 1 hour chart is the same as a pattern on a 12 hour chart. Just so you know: IT’S NOT THE SAME.
This goes hand in hand with traders not understanding the scope of the trades they are taking. 2 hour charts are appropriate for day trades. Day trades are NOT the same as swing trades. And if you mix the reward/risk from these types of trades (as many do), the result you get is a very erratic, inconsistent and random performance.
We have a process that defines what we do, why we do it and what kind of risk and reward to reasonably expect. We identified a swing trade long opportunity on Friday which we shared with our followers. The trade is now active and has reached the first target at 10,365.
Were there any signals in the alt coins? Even if there were, relative weakness says they are NOT worth the risk. There is greater potential in Bitcoin, why would we look anywhere else? We don’t get caught up in hope, or other emotional tendencies.
No Proof, No Reason?
In financial markets, change is constant. The alt coins are out of favor now, but that does not mean they cannot come back into favor. Rather than rely on hope, we require the market to provide evidence.
If we are going to consider alt coins for swing trades or even position trades, these markets need to prove themselves in terms of price structure. And a favorable price structure (like Bitcoin) begins with capital flow.
Relative strength should IMPROVE. Litecoin was relatively strong compared to Bitcoin throughout the early part of the year. And WHEN we see the price action of a particular alt coin behave in a similar way, it will go back on our radar. We would rather assume risk in a favorable environment rather than gamble for better prices.
Overall, Bitcoin continues to be resilient while the alt coin space continues to lag. Hope will not change where capital flows. Our goal is to rotate out of alt coins and into Bitcoin as each market provides an attractive opportunity to do so.
Fundamentals do not cloud our judgement or interpretation of the more relevant technical situation. When the alt coins provide the proof in the form of improving price structures, we will be more than happy to consider them.
Until that situation presents itself, we follow the money. And right now, it continues to flow into Bitcoin.
Questions and comments welcome.This is a Free Member article. To receive email notifications when new articles are available, click here.