The Wolf Den #119 - Weekend Trade Ideas And Education
Bitcoin
What is there to say? It keeps going up and is within a few percent of the all time high. The analysis has not changed, there's really little more to share. This is a fun chart, however.
If you have been here a while, you will remember me sharing that bull pennant/triangle for weeks, saying a break above would be the ultimate long. Look at how it has played out.
The target is right at the all time high.
I cannot in good faith offer useful TA for a Bitcoin trade here. It's completely off the reservation, doing what Bitcoin does. I am sitting back and watching my portfolio grow, no need to trade it with leverage or try to guess at this point when it will stop. We have been accumulating for years. Not going to overthink it.
Altcoin Charts
I am in quite a few coins at the moment, most of which I have mentioned at some point here or shared on a livestream etc. The YFI setups I have shared are still valid and going great. VOX still looks awesome. I am also in CRV, COMP, DOT, EGLD, HOT, INJ, PNT, UNI, WAVES, YFII, YFDAI, YFL (sense a pattern with the Y coins?). The XRP long has been an incredible trade. Many of them I participated in the presale and have held them, not trading the chart. Coins like POLS, SNTVT, UTK, APY. There are many more, but I I did not buy them on a chart, I bought them on an opportunity and would never compel my subscribers to follow at a higher price. I have small positions in a ton of alts that I invested in early. Hard to share everything at this point, but here are some more setups that I am currently watching or actively trading.
Also worth noting, as I said in the livestream and yesterday... I am interested in slowly accumulating DOGE again at current prices.
It is possible that NONE OF THESE SETUPS WILL BE WORTH TRADING OR WILL TRIGGER. Bitcoin is starting to push, so be careful.
BITCOIN DOMINANCE
We look at the Bitcoin Dominance chart to determine when altcoins are likely safe to trade. We have seen a slight drop today, but it's important to note that Dominance is still above support and this just looks like a test of that area for now. If it finds support and continues up, our altcoins trading window will be very short. It could already be closed.
As you can see on the above chart, Dominance took very clear stairs down, flipping support to resistance. The same levels are being consistently flipped back to support on the way up. We want to see the most recent blue circle fail.
ADA/BTC & ADA/USD
This is the 3rd time I have shared this chart this week, so I will be brief. We are seeing a clear potential bullish divergence with RSI. I would like to see this confirm today with a clear elbow up on RSI. Price is in a clear demand/support zone. The quick target is the next zone above and the descending blue line. The real trade is a break of that line and a true reversal to the upside. Revisit the past few newsletter if you have questions.
I have already gone long on the USD pair earlier this morning, but it was preemptive and I have a tighter stop than the setup shown. As you can see, price broke the descending black line which should signal further movement up. Since then, we have a clear ascending triangle, which should break to the upside. The way to trade an ascending triangle is either a clear break of the top horizontal line or a break and retest as support. The stop shown here is quite wide, because it accounts for a drop below the ascending line. How you set your stop is up to you, but you can keep moving it up in a setup like that as the line rises.
Higher targets are worth discussing later if price actually hits the top line.
ALGO/BTC
Another one we have been watching for ages. This has clearly broken descending resistance and retested it as support. Now it is finally moving away, with an oversold bull div that is not confirmed yet until daily close. We want to see a close above 1566, the horizontal resistance. Targets are shown. If this is a true trend reversal, this should eventually revisit the top of the descending black line.
Watch today's candle close for confirmation.
COMP/BTC
I am already in COMP, but we have a really nice opportunity here if the chart is correct. Price broke the descending line and retested it as support, in confluence with a horizontal line. It also formed another potential bullish divergence here, yet to be confirmed. As you can see RSI broke its own descending line to give us a heads up that the breakout was coming. There are two targets here, depending on your level of greed. Stops for me are below the recent lows, but that will change depending on price action rising.
EGLD/BTC
After doing roughly a 15-20x on Elrond earlier in the year, I have a bag of EGLD and am interested in buying more. It is in a nice spot here, with a potential bull div coming out of oversold RSI. I want to see a clearer elbow on RSI to close the day and preferably wait for a break above horizontal and descending resistance. Still I am taking a small position now with a stop below the recent low, in case this is a bottom. The real trade comes with a break of the channel and that black line. That's what you should be watching for.
EOS/BTC
The daily chart is showing wildly oversold RSI with a potential bullish divergence. There have been confirmed bull divs within this movement, but this would be the "final boss" so to speak, confirming the larger div.
This channel on the 4 hour is more of an idea than a confirmed pattern, but I like it. There are not enough touches on the top for it to be official, and you need them alternating with the touches to the bottom. Still, this is how I view it, because it's very clear that the EQ of the channel (center line) has played resistance and support. So at this point you might want to wait until t a break above the channel to enter. This is a tough trade because there's not the clearest entry - but it does really look likely to reverse.
VET/BTC
This is sitting above a key support and just below a major descending resistance. Really easy - I will buy this if it breaks the descending line, and have had an alarm on that line for months. This is an asset I want to own eventually, and this could be nearing a bottom. A break of that line would signal a likely reversal. I will update with targets if it happens.
The Disposition Effect
"There is a large body of academic evidence demonstrating that individual investors are subject to the “disposition effect.” Those suffering from this phenomenon, which was initially described by Hersh Shefrin and Meir Statman in their 1985 paper, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” tend to sell winning investments prematurely to lock in gains and hold on to losing investments too long in the hope of breaking even."
Read the article, it's really interesting and explain the phenomenon that often causes traders and investors to sell way too early and hold way too long. They also discuss the effect of this on the market and how strategies can be formulated around this knowledge.
How Should I Decide What to Invest In?
By Adam Tarlowski:
Whether you are new to the crypto space or a seasoned investor, everyone that wants into the crypto space must eventually decide on at least one coin they wish to buy. We have gone ahead and detailed below how the Wolf Team thinks about what coin could be successful and safe over the long term. The framework below is best suited for investors or traders looking at the market through a long-term fundamental lens and should only be taken as a way of thinking about the market.
First and arguably most important is the availability and integrity of a cryptocurrency’s white paper. It is imperative that the white paper at a basic level makes sense and is complete. This can be challenging for those not technically inclined but at a minimum, we recommend you work to understand and comprehend the abstract and introduction. There are numerous sources that can break down a coin’s white paper into more understandable terms. This is similar to looking at a stock’s balance sheet and company financials. Tt would be unwise to buy something without a basic comprehension of the primary source. With the white paper in mind, potential buyers should understand that the intention of the white paper may not be the current direction of the coin. For example, Bitcoin’s original white paper delineates Bitcoin to be, “A purely peer-to-peer version of electronic cash.” Today many are viewing Bitcoin as a store of value akin to gold. This isn't a bad thing, in fact, it has been argued that Bitcoin’s competing narratives are boosting its value thesis. All in all, there is no better starting place to start your search for value than the white paper.
The next consideration we look for is the problem the coin is solving. If you can't clearly recognize the problem your coin is solving, it is likely still searching for a problem to fix. There may be a good reason why you are struggling to explain the purpose of your preferred coin because the coin itself does not yet know what it does. Take Ethereum for example. In simplest terms, Ethereum is building decentralized applications and smart contracts. These smart contracts have real-world use allowing contracts to execute on their own without human input. Ethereum, like Bitcoin, is many things to many people, but it still has a purpose that can easily be imagined in a day-to-day sense. As a bonus in this category, the simpler it is to comprehend what problem your coin solves, the more likely it is to succeed in the long term.
The next measurement we look for in a healthy coin is its community. This can be a tricky one to measure for those not embedded in the community or those who are biased from being within the community, but luckily tools exist that analyze this for you. Our good friend Joe Vezzani built a tool called LunarCrush to measure community sentiment and engagement which we find to be very useful. At a basic level, if your coin isn’t receiving attention from the major outlets like Cointelegraph or Coindesk or gaining traction on Twitter, YouTube, Reddit, and Github, it is likely dying. A strong CEO and founder can be crucial to a coin’s success, we can look at Beniamin Mincu, the founder of Elrond Gold as a good example. He has come onto the Wolf Of All Streets Podcast and continuously stays active on Twitter addressing the community with updates on his team’s progress. Investors are always concerned with who is running a company when it comes to buying stock so the same applies to crypto. If your coin does not have an active, clear, leader that is still okay, it just means it may be more necessary to use the LunarCrush tool to better grasp the community strength and sentiment.
When assessing a coin, one of the first metrics we look at is the size of its total market capitalization. This can easily be found on CoinMarketCap or by multiplying the current price by the circulating supply. A coin in the top 20 by total market cap likely has a lot more information on it and market resilience than a coin that is ranked #2000 on the list. There are many exceptions to this rule, but we believe that the higher up a coin is on the list, the safer it is. This also includes how long it has been at its current rank. The most predictably profitable coins are likely going to be those that are ranked in the top 100 and move up to the top 10 overtime. Finding them is the difficult part. This leads directly to price history. There is no coin that has a more publicly available price history than Bitcoin. Because Bitcoin has grown through multiple cycles, we find it to be the most likely candidate to repeat the process. Coins that have just been created may be likely to join in on the bull run, but there is less certainty when there is less historical price data. That said, those have a better chance for insanely high gains - high risk, high reward.
Finally, we like to work with the trends, not against them. This means finding the projects that are geared towards what is new and developing within the space. DeFi has been hot for a few months now and more than likely still has a lot of room to grow in 2021. Since DeFi has only been around for a fraction of the time that crypto has been around, it is likely that the best investments are going to be within the DeFi sector. The major drawback to DeFi is its abstract and complicated nature. If you can get past this and grasp a basic understanding, it would be wise to diversify your portfolio with a small percentage of some popular DeFi coins.
Each of the above suggestions were ways in which we think about a coin we would like to invest in. We urge responsible investors to do the same. Each suggestion only scratches the surface and there are other ways of exploring value in the market beyond what we discsussed. All in all, be safe and smart - there are many exceptions to the above rules and misleading signs. For example, successful community engagement and a high market cap do not automatically mean a coin is a sound investment. Think SushiSwap. Checking off two boxes but completely lacking others could spell disaster. Hopefully, these pointers give you a solid foundation for thinking about where you place your bets as the next bull run approaches. On our end, we will continue to dive into these topics in more detail to help you better understand them.
Attitude Is Everything
From my friend Mr. Anderson. I could not agree more, and this is an essential lesson for a trader and maintaining a positive attitude.
"The longer I live, the more I realize the impact of attitude on life.
Attitude, to me, is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than successes, than what other people think, say or do.
It is more important than appearance, giftedness or skill. It will make or break a company... a church... a home. The remarkable thing is we have a choice every day regarding the attitude we embrace for that day. We cannot change our past... we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play the one string we have & that is our attitude.
I am convinced that life is 10% what happens to me and 90% how I react to it. And so it is with you... we are in charge of our Attitudes.”
Occam's Razor 101
By Sahil Bloom:
With a wave of complexity and unknowns smashing into the financial and political worlds, the elegant simplicity of Occam's Razor is primed for a revival. But what is Occam's Razor and how does it work? Here's Occam's Razor 101!
Occam's Razor is a classic problem-solving principle and mental model. It says that when you are weighing alternative hypotheses, the one with the fewest necessary assumptions should be chosen. Put simply, the simplest explanation is often the best one. Simple is beautiful.
The benefits of Occam's Razor can be extensive. Going with the hypothesis with the fewest number of necessary assumptions means it is easier to prove/disprove. There are fewer assumptions to vet in your process. It allows one to follow the critical path to an outcome.
The origin of the named concept is attributed to William of Ockham, an English friar, theologian, and philosopher. His simplified deductive reasoning led others to coin the term in his name. But to be sure, the concept itself has been employed by great thinkers for centuries.
Let's look at a few real-world examples of where Occam's Razor might be useful (and where it might get you in trouble).
Investing? As Gavin Baker often says, simple is beautiful when it comes to investing. In developing perspectives on a company or industry, cut down to the critical assumptions or variables for determining the future state. Remove the noise and you are left with the signal.
This is a critical concept as it relates to developing true, differentiated insights and ultimately generating alpha. Gavin Baker spoke about this at length with Patrick O’Shaugnessy on the Invest Like the Best podcast recently. Check it out!
What about government financial crisis response? Every crisis is different and complex. COVID-19 precipitated a truly unique financial meltdown. But if you wanted to determine the government's likely response, the simplest answer was probably the best: they print money.
With so many outstanding variables and assumptions, taking an Occam's Razor approach to determining government policy interventions in times of crisis may make sense. When in doubt, they print, they bailout, and they kick the can down the road.
But as with all mental models, Occam's Razor is far from perfect. It is a great way to answer efficiently in the absence of an environment of complete information. But it can get you into trouble if used too broadly.
So that was Occam's Razor 101. I hope it will prove useful as you try to make sense of this complex world. For detailed analysis of Occam's Razor and other mental models, I highly recommend checking out Shane Parrish and Farnam Street!
IRS Taking Their Sweet Time
I have an idea for the IRS.
K.I.S.S. - Keep it simple, stupid.
USD in is cost basis, USD out is profit or loss. Ignore what happens in between, because it's utter nonsense to consider the purchase of an altcoin or coffee as a "sale" of Bitcoin.
The craziest part of this is that they will inevitably pass sensible tax laws on crypto - but there will be no refunds for the almost 40% that we pay on profit before that happens.
SEC Chairman Speaks Highly of Bitcoin
Clayton sounded more bullish on bitcoin than he's been in years in his Thursday interview with CNBC.
The SEC hasn’t always been crypto-friendly, but a recent interview with the chairman of the SEC, Jay Clayton, was a change of tune. When Clayton was asked about Bitcoin, he said that inefficiencies in domestic and international payment systems are driving the rise of Bitcoin. He went on to say that this will only continue in the future and that we can expect more regulation coming in the payments space. Clayton has publicly announced that he will step down at the end of the year, so we will be keeping an eye on his replacement and their views towards the crypto space.
Bloomberg Intelligence Strategist calls for $170,000 Bitcoin
Our friend Mike McGlone from Bloomberg, who recently came on the WOAS Podcast just revealed in an interview that he believes the price of Bitcoin will have, “an additional zero on the end of it within the next year or two.” He mentioned several reasons why Bitcoin will perform so strongly, including its “decreasing volatility vs. gold and the NASDAQ, institutional FOMO, and endless money printing.” He maintains all of the same narrative that we do for buying Bitcoin. We really hope he is right!
First-Ever Company Sponsored Bitcoin Retirement Plan
Just another example of Bitcoin becoming more normalized in traditional investment plans. The Digital Asset Investment Management company DAIM has come forward to assist companies “in creating a 401(k) plan that offers several recommended model portfolios of varying risk to traditional assets and allocation of up to 10% to Bitcoin.” Individuals have been able to explore digital assets in individual retirement accounts, now they can begin exploring options through the company they are employed in.
We are going mainstream.
Unemployment Claims On The Rise In The USA
After finally seeing steady decreases in initial unemployment claims for well over a month, the United States once again saw a familiar trend - an uptick in lost jobs. While this could be an anomaly, this suggest that the labor-market recovery is slowing amid a surging pandemic and fresh business restrictions. Initial jobless claims in regular state programs totaled 742,000 in the week ended Nov. 14, up 31,000 from the prior week.
These numbers are still astronomical, and would be record setting in any other time in American history. Total jobs lost now are over 10M - it was around 22M at the peak, indicating that 12M people have gotten back their jobs. That said, the entire great recession of 2008 only saw 9M jobs lost total in over 4 years.
9M of the 10M jobs currently lost are in the service sector, with a disproportionate amount of women (55%) out of work. A strong majority of those women are minorities.
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.\
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions.
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: Scott25
I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
This is one of the main places where I hold crypto to gain interest. Celsius also offers dollar or stablecoin loans against your crypto, starting at just 1% annual interest. Celsius is giving WOAS followers $20 to open a new Celsius wallet. All you have to do is enter promo code WOLF, then transfer and keep at least $200 worth of crypto in your wallet for 30 days.
My preferred crypto tax software.
Binance is finally available in Florida!
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor.