The Wolf Den #29 - Bitcoin, Ethereum, Dow Jones, Trading Rules
Bitcoin Charts And Thoughts
MONTHLY CHART
What a difference a day makes. This could be just a relief rally, but price is up almost $500 from when I put together the newsletter yesterday. I am feeling comfortable in my position from $7,777, they key monthly level where price has bounced for now.
WEEKLY CHART
We are a long way from the weekly close, so we can't spike the football here before getting in the end zone. That said, this is exactly the reaction (so far) that I was looking for with a retest of that descending channel that I've been discussing for weeks. Thus far we have a very healthy retrace of roughly 70.5% which is considered by many to be an ideal entry.
DAILY CHART
Looking a lot better than yesterday thus far. A nice bullish SFP (swing failure pattern) below the previous swing low. I explain this often, but for those who have not been here, a swing failure pattern is when you see a wick below a previous swing low and a close above. This is indicative of whales pushing price down to a key are of likely liquidity to fill their bids. Basically they need to find a ton of buyers, so they push price to an area where shorts will likely be triggered, which gives them sellers for their buy orders. It's also an area where there are likely stop losses for people with longs - also sell orders. This is sometimes called "sweeping the lows" or "sweeping stops."
The daily candle also had a nice long down wick, which is a sign of a potential reversal. If today's candle closes green, it would be a sign of at least some likely continued relief.
4-HOUR CHART
The initial target of my current position it the zone shown here on the 4 hour chart. This is also in confluence with the neckline (ascending black line) of the head and shoulders that I showed yesterday. There are a lot of reasons to expect resistance in the $8,400 area, if price gets there.
ALL OF THIS SAID, this could just be a reactionary bounce to the big drop. I would not be surprised at all to see this rally fail.
Ethereum
WEEKLY CHART - ETH/BTC
Ethereum looks good on the weekly chart. Price broke out from a confirmed double bottom. The neckline is shown in red - I would love an entry at a retest of this line, if it drops that far. You can also see a key area of support and resistance (the blue box) which is currently holding as support. The 50 EMA is also being tested here as support.
DAILY CHART - ETH/BTC
The daily chart looks good as well. Price is forming a potential bull flag after the recent move up in the middle of last month. A break to the upside would target the top of the price zone shown in blue, based on the height of the flagpole. You could also draw the flagpole to the lows further to the left of the chart, but that's not how I view it. I would first like to see price on the top half of the flag, above the EQ (dashed line). A good entry could also be a drop to the bottom of the flag which is in confluence with the 50 EMA (blue line).
Altcoin Trades
I am hesitant to share alt coins trades at the moment. I am only in MATIC from those shared below. Markets are generally in shambles across the board, so interest in alts seems low at this time. The trades shared below are based on what may happen - none of them are "enter now" situations at all. HBAR is a loss from yesterday, not a fresh setup.
HBAR/BTC
This trade did not turn out as planned. That does NOT make it a bad trade! A good trade is one where you execute your plan, regardless of outcome. I cannot see the future. The premise was solid - a bounce off of support with a tight invalidation. I took the trade because it was easy to cut loose if it dropped below the channel. I stopped out of this trade for a .5% portfolio loss - not even a flesh wound. For now I remain out of this coin.
MATIC/BTC
I took this trade yesterday after I had already sent out the newsletter. My entry is 258. The idea would be invalidated with a close (preferably daily) below that black support at 258. For now, it looks like a nice flip of resistance to support. Targets are fib levels and lines shown on the chart below. Hitting these would require perfect market conditions. I will likely use a trailing stop now if price rises to lock in gains.
OGN/BTC
A number of people have asked me to look at OGN, which seems to be a popular coin to trade at the moment. This is an hourly chart, which is not what I usually trade on, so this setup could change or invalidate fast. That's your disclaimer.
Price held above support at 5200 and is forming a bit of a bull flag. It's not a confirmed flag, because it does not have alternating touches up and down - the two touches down are concurrent without a touch up in between. The idea is clearly there. The target is shown based on the length of the flagpole. I would ideally look to trade the breakout and retest.
XTZ/BTC
I still have not found an entry I like on XTZ. For now, there are two areas of interest - either the test of the former all time high as support (bottom circle) or a break of the resistance line and retest as support. To be clear, these circles are not time sensitive, I used them to show the lines that I am watching. I would not buy the top circle until that line is broken and retested.
The Role Of Luck In Success
This has nothing to do with crypto or investing - it’s just a fascinating article on the role of luck in life success. Not surprisingly, luck plays a far bigger role than most (especially the successful) are willing to admit. The best that most people can do is work hard to put themselves in situations where they can be lucky.
Dow Jones Chart
As you know, I do not depend exclusively on charts when trading legacy markets. Fundamentals are far more important and charts do not help very much in a black swan event like coronavirus.
That said, I have been worried about the stock market for a long time - there was clear fomo in the air and QE and rates cuts were helping to prop up the market.
Keeping all of this in mind, let's look at the chart anyway Price broke an ascending channel and uptrend that it has been in since the recession of 2009. Crazy. You can see the clear breakdown in the channel.
Zooming in, we can see that price is playing ping pong between the 50 MA (blue) and 200 MA (red). The 2018 low is shown by a black line - certain indices are already nearly testing those 2018 lows - we still have another 15% to go on the Dow, if it chooses to drop that far. If the 200 EMA fails (I believe it will), then this previous low is a reasonable place to start looking for a serious bounce or reversal.
This is the Dow Jones yearly chart, for perspective. No matter what happens here, it will be a long term buying opportunity. Even the Great Depression on the left side of the chart was a "buy the dip" chance for those with a long time frame and cash on the side. Never lose site of the long term picture - investing in the stock market has quite literally never been a bad idea over 10 years or longer.
Trading Rules - A Few Of My Favorites
Experienced traders learn from the lessons of the past and develop specific trading rules to avoid making the same mistakes twice. They stick to their rules, no matter how much temptation there is to violate them. Everyone has a different list - here are some of mine, which I keep posted next to my screen to make sure that I check them before entering a trade.
Never revenge trade
When I finish a trade, whether in profit or at a loss, I have a rule that I steadfastly stick to. I close the chart and do not look at it for 24 hours. This prevents me from revenge trading. There’s a reason the trade was closed, which means there’s likely no reason to immediately re-enter.
Revenge trading is responsible for a large portion of an emotional trader’s losses. There is no rational reason to attempt to recover your losses on the same asset that you lost them on and its likely that you can likely make a better trade elsewhere. This is particularly key when scalping Bitcoin with leverage. Crypto traders watch Bitcoin for hours a day and this makes it very hard to detach after a loss and not reenter.
Avoid trading crypto on weekends
Weekend price action in the crypto market is often volatile and occurs at low volume. This makes it harder to predict price action. Whales have a much easier time moving price with low liquidity when the walls are not defended. This puts retail traders at a significant disadvantage. Also, weekends are for decompressing and having fun – the natural time to take a break from the charts.
Never trade Forex on Friday
Fridays are famous for added volatility in Forex markets, largely due to professional traders taking profit and closing positions to avoid action on the weekend when they are unable to manage their positions. Like the pros, you generally don't want to carry open positions into the weekend because you are likely to get stopped out at the Sunday open if news moves price against you. Friday afternoons are often called "chop and slop" because most traders are thinking about other things.
Maintain specific trading hours
I only trade when I am fully focused and sitting at my desk. The crypto market is 24/7 and therefore impossible to track at all times. I set trading hours for myself and treat it like a job. If I keep a position open, my orders are set and I do not check the status until I am back in my office during “official” trading hours. This removes the urge to be constantly attached to the market and my phone and allows me to spend time with my family and to do other meaningful things.
Never fall in love with an asset
If you're in love with the asset or investment that you are trading, you give way to flawed decision-making. As a trader, It’s your job to capitalize on inefficiency, making money while everyone else is leaning the wrong way. Trading without emotion means trading without attachment. People tend to become emotionally attached to specific altcoins, teams, and projects. This is fine for investors, but a potential disaster for a trader.
KISS - Keep It Simple, Stupid!
One of my steadfast rules. As a beginning trader, I used to check multiple indicators, news sources, and patterns to try to find confluence for my trades. This usually resulted in paralysis by over-analysis. When I see something on a chart that fits my system, I generally take the trade, understanding that my stop loss and position size are far more important than my entries and exits.
Only trade when you are in the proper mindset
This is key. I will not trade when I am angry about something, when I am tired, or when I am stressed. I have to be in an even, zen-like state to trade unemotionally and use my best judgment. Having a life outside of trading is key to maintaining the proper mindset. Going to the gym, spending time with family and friends, reading books and playing sports are all key to my trading success.
Don’t forget to journal
Journaling is boring and tedious. It also happens to be essential because it helps you avoid making the same mistake twice. I have to remind myself to slow down, stop looking at the charts, and take the time to record as much information as possible about my trades.
Paper trade daily
I still paper trade regularly. In fact, I have far more theoretical positions open than actual ones at any given time. I paper trade multiple Bitcoin positions each day, as well as a number of altcoins. Since I am risk-averse and take very few real trades, I use paper trading to test new ideas and indicators and to keep the tools in my box sharp for when I need them.
Don’t try to catch a falling knife
The phrase “catch a falling knife” describes the attempt by a trader to buy a dropping asset at or near its low point of a significant move. This often occurs when someone is trying to make up for a loss caused by a large move, in an effort to average down at the lowest point and ride the asset back up. It is unwise to attempt perfectly timing the bottom and far safer to wait for confirmation in the form of a support to resistance flip. Trading within a movement is far less risky than attempting to buy the bottom and sell the top.
Don’t overtrade
I have found that the less I trade, the more money I tend to make. Even when the market is offering multiple opportunities, I try to keep less than 3 active trades open at any time. It is far harder to manage risk with more positions, as you could take a major loss if every trade goes against you at the same time.
This is the set of rules that I live by, all developed through hard lessons and losses. You should create your own list of rules - it will help you make good decisions and stay profitable!
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.