The Wolf Den #50 - Halving, Alt Trades, Poker Vs. Trading And More
Bitcoin Thoughts And Analysis
MONTHLY CHART
We are only 12 days into the monthly candle, so it's hard to read too deeply into what is happening on this time frame. As you know, last month's candle was mega bullish, engulfing the March candle and breaking through key levels of resistance. Looking at this chart, it is important that $7,777 hold as support moving forward. I have bids in that area, always, just in case we go back down there to test it. The $9,243 area is clearly meaningful - it has been rejected on 8 of the last 9 candles! Adding to that, EVERY SINGLE CANDLE FOR THE LAST YEAR has touched that area as support or resistance, except December (which traded well below) and June 2019, when it was broken through as resistance.
Bulls definitely want to see a close above that area to signal continuation is likely.
The real story will remain $10,540 moving forward. That line makes a higher macro high and would finally put the bear argument to rest.
WEEKLY CHART
Simple. Price slammed into weekly supply and was rejected. It's holding support at the pink line. Everything between is somewhat "chop" although there is a lot of money to be made trading in that area. On a macro level though, price action above supply should signal more movement up and a clean weekly break below the pink line should signal more movement down.
Last week I kept talking about 3 lines on the DAILY chart. We wanted to see a break of the red line, then black line, and ultimately the purple line. This happened on the daily - but not on the weekly. As you can see, price wicked through the red and black, bull traps of a sort. Those areas remain essential. Notably, price is sitting directly on the 50 MA on the weekly time frame. Moving average traders would really like to see that hold as support.
The large wicks on this weekly candle (not closed) and last week show a lot of indecision in the market. Hard to trade based on what we are seeing here.
6-HOUR CHART
I took a scalp long last night when this bullish divergence with RSI confirmed on the 6-hour chart. Confirmation did not come when it make the second low on RSI, but rather 6 hours later when the elbow up on price and RSI was clear. I entered at $8,540. I exited the position this morning at $8,830. Just a fun little trade. This div is still valid, although a hidden bear div is possible to follow it up. I was unsure of where we were headed when I woke up, so I took my profit and ran.
HOURLY CHART
I rarely analyze the hourly for you, but it's easier to see what is happening. Price is currently in 2 ranges, the larger one that began at the 10K area and ended at the bottom of the dump, and the smaller one that has formed at the bottom. Direction will likely be determined by a break of this smaller range, whichever way it decides. Trading right now is decidedly chop - there's no great reason to do it unless you are scalping in this range. Dangerous business, and the reason I closed my trade near the top. Since writing this, price is testing the range top.
The 50 MA and 50 EMA used to be my favorite lines to trade with when I was a day trader. You can see here that price lost the 50 MA on the dump and has seemingly recaptured it now. That is bullish for small time frame traders. You can also see that price was rejected exactly at the 200 MA on this time frame.
Double Tops - A Quick Lesson
I have discussed this countless times, both on Twitter and in the newsletter. I am always baffled at the incorrect identification that people give patterns - especially this one. This also goes for double bottoms - just flip everything upside down. First, let's look at a valid double top.
By definition, a double top is a bearish reversal pattern, formed by 2 horizontal tops (or within a few percent). This pattern is confirmed when price breaks the neckline, which is the swing low between the two tops. Until that line is broken, there is no pattern to even discuss, unless you like the idea of a "potential double top." Regardless, there is no tradable information until it is broken. The target of a double top is based on the depth of the pattern, which you then draw from the broken neckline.
As you can see, Bitcoin did have a valid double top. Price swung up to the $10,600 area two times and failed to break above. This pattern was validated when price broke the red line, the lowest swing between the two tops. This pattern was NOT TRADABLE until the $6,400 area. We know what happened from there.
I have already seen a number of people calling this new top a "double top." This misses all of the nuance and context of the pattern. Price stopping near a previous swing high is NOT A DOUBLE TOP. For this to confirm as a double top, the red line would have to be broken - that's the swing low or neckline. $3,596. To confirm this double top would require a break of that line - and would target 0. Get the idea out of your head. There is no double top here.
The Wolf Of All Streets Podcast Ft. Dave Chapman
I had the honor of speaking with Dave Chapman, CEO of OSL, which is the leading digital asset platform in Asia (maybe the world). This was definitely one of my favorite conversations, because Dave has deep insight into how big players move money in the market, how institutions are exposed to Bitcoin and more. If you have ever wondered what is really going on Over The Counter and off of the exchanges, this conversation will be enlightening. We also dug deep into the Halving, COVID in Hong Kong and why they have been successful in stopping it, and a myriad of other topics. It was a really interesting conversation with a brilliant counterpart.
Trading Lessons Learned From Poker
While poker and trading may seem like vastly different pursuits, the similarities between the two are striking. I have used the analogy a number of times, because I find that many people who are drawn to the crypto trading space were once successful poker players. Here are a few ways that I think they are quite similar.
Based On Probability
Poker and trading are both based on probability. If you have ever played poker, you have experienced being ahead in a hand but losing anyway. How many times have you gone all in with pocket aces pre-flop, only to see the hand lose to a statistically inferior pair on the river? No matter how smart of an investor you are, there are variables with any coin or stock pic that are our of your control. An investor or trader is just like a poker player - they can have the best hand but still be unsure that they will win.
Portfolio And Risk Management
Portfolio management in investing and trading is similar to bankroll or "stack" management in poker. A good poker player is always grinding out victories to add to their overall holdings. They never bring their entire bankroll to the table, because they have a chance to lose it all - even on a hand that should statistically be a winner. They play with a fixed amount of their overall bankroll.
Traders should do the same. Conventional wisdom says that nobody should trade with more than 15% of their portfolio. And they should manage that 15% like a poker player - never having all of it at risk on a single hand or trade. Limiting potential losses and maximizing potential gains are key to success in both pursuits.
Psychology And Emotion
Poker players know what it feels like to go "on tilt" foregoing their plan and making emotional decisions, often after a sizable loss. The feeling that they need to win back what they just loss usually compounds until further losses. Does that sound familiar?
The mark of a great trader is the ability to make decisions based on a fixed plan, and without emotion. The moment that a trader begins to push, revenge trade, feel fear or get greedy, they have lost their edge and the market will punish them for it. The best poker players are emotionless robots at the table as well.
In his famous book Super System, Doyle Brunson explained that he always viewed his chips as "units" rather than "money" in an effort to detach his emotions from his decisions at the table. This is a great lesson for traders as well.
Understanding The Odds
Poker players often play positions where the statistical odds of winning the hand are against them, but the pot odds justify the call. For example, you can know that you only have a 40% chance of winning a hand, but calling $10 on a $100 pot could yield a potential 10X gain.
The call is justified. Trading is similar. You can justify a scalp against the trend if a tight stop is warranted for a relatively larger potential gain.
Bottom line - controlling emotions, managing risk and understanding the odds of your decisions are key in both trading and poker.
The Men Who Stare At Charts
Coindesk featured me in an article about technical analysis, focusing on the personalities and lives of the people who "stare at charts." He took a few of my comments in a way that they were not meant to be taken (cigarettes to children in Africa), but it definitely delivers the point - I generally believe that technical analysis works because everyone is staring at the same charts. It is a bit of a self-fulfilling prophecy, and far from a science. As I often say - a chart is just a visualization of human emotion. We use it to determine when people are fearful and greedy, and when sentiment is likely to reverse.
JPMorgan Continues To Build Their Blockchain
This seems like bad news for Ripple, but good news for crypto in general. Ripple is directly competitive - and if you are betting on a horse, JPMorgan seems like the safer way to throw your chips.
While JPMorgan is decidedly the enemy of everything that Bitcoin stands for, their recognition that crypto is a significantly more efficient and safe way to move money is a massive endorsement of cryptocurrency. This does not "help" Bitcoin, per se - it's a completely different product. However, it certain helps raise awareness of the use case of crypto and will only continue to bring more people on board.
Paul Tudor Jones Has 2% Exposure To Bitcoin
Paul Tudor Jones made news last week when he expressly declared his belief in Bitcoin and divulged that he had significant holdings. He likened Bitcoin to Gold in the 1970s and said that he is buying it as a hedge against inflation and central bank money printing. I think he's a maximalist.
You can read his thoughts below in Bloomberg.
He has now clarified that he has 2% exposure - which is a lot for a risk averse Wall Street hedge fund icon. He believes that Bitcoin could be the "best performer of all of them" when discussing everything he owns in his portfolio.
It's happening. This is the sort of mainstream exposure that Bitcoin needs to reach adoption - or at least a level of awareness where the Average Joe views it as a necessary piece of their larger portfolio.
Altcoin Charts
BAND/BTC
This is one of those rare "buy now" charts, at least as of the time of writing. Price broke the descending white line with good volume and is retesting it as support. That's really it! The target is the recent high at the top of that descending line.
CELR/BTC
I have alarms set for a break of the descending blue line. That would signal an end of the downtrend and a likely price reversal. I also like that price has recaptured 21 sats, the previous all time low and range low. Some people would buy 21 now. I am more likely to wait until the descending line is broken.
DOGE/BTC
Simple, but worth watching. I am always holding DOGE, as it seems to maintain value vs. BTC no matter what. A break of the descending line could signal another classic DOGE cycle up coming, so watch for it. We don't want to see it break the ascending support.
FTM/BTC
I am in this from 43 sats, when it broke the local descending white line. It has moved nicely since then. 47 is the local resistance, so I will consider adding more to the position if it breaks that and retests it as support. My first target is the top of the range (53 sats) and then 62, at the top of the descending line. Above the range, a much larger reversal could be in play and this could go way higher. No need to think about that yet.
MATIC/BTC
After a number of successful trades off of the ascending support, price finally broke down and flipped it to resistance - temporarily. Price is actually trying to flip it back to support, which would be encouraging. For me, I am watching for a break of the new descending black line to signal another entry.
THETA/BTC
This one flew before I could post it, as I started watching yesterday. There's an interesting black line that acted as support for a long time, then resistance. It has now ben flipped back to support. I would personally still love to see a retest of the pink line as support, at this point and then a move back up above the black line. I don't see an immediate entry here, unless it retest that or the black ascending line once again.
WRX/BTC
This looks really good to me. Price retraced all of the way back to this daily demand zone shown. As you can see, price is attempting to exit the zone and flip it back to support. A few candles have tried and failed, with wicks up. I want to see the daily close definitively above the zone. This was also a golden pocket FIbonacci retrace. Really nice confluence for a potential reversal back up.
XRP/BTC
Looks bad, but a few people have asked. I would not mess with this until it has recaptured 2365. That was a key support that has broken. On the plus side, price is clearly in a descending wedge, so it should eventually break to the upside.
Legacy Markets
Stocks are largely still in a no buy zone for me. It seems that most of the movement has happened, so it's hard to be excited about purchasing anything with so much fundamental uncertainty and after such a large relief bounce. I may have missed the biggest move up, which is no big deal - my investment strategy is intact and I have had a ton of successful shorts along the way. For now, I am not sharing much here because there's little see, in my opinion.
SPY
Nothing has changed here for me. Price is still struggling in the golden pocket (61.8% - 65% retrace of the move down) and volume is still decreasing. It is pretty crazy to see the steady down turn in volume as price has risen. The only answer to that is it's a reaction to the sheer amount of selling. If you look before the crash, volume was roughly near current levels. So that's worth considering.
XAG (SILVER)
I am finally back in profit on this trade. As I said, I love the reaction to the descending black line 2 months ago and the way that price closed back in the green range. Only the wick went below. I have been sweating this one out a bit, but I see not reason to exit any long position above the bottom of the green range. This still looks very bullish to me. Targets are the EQ (dashed center line), black line shown and top of the range, for starters. Then we can start talking about the top of the descending black line.
Great Analogy For Fed Intervention In The Market
This is a great thread from Sahil Bloom (ex Stanford baseball player and present private equity guy) that makes the ideas of supply and demand clear. He uses Renaissance Italy as the example, with a wealthy man, cleverly named "FEDerico" as the antagonist. This is exactly what happens when a big player intervenes and manipulates the market. Perfect analogy.
Using Leverage To Mitigate Counterparty Risk
This is a great video from my friend Koroush AK on the proper way to utilize leverage to mitigate counterparty risk. While I obviously DO NOT agree that everyone should be using leverage (which I have said many times) this does make a clear argument for using it responsibly to protect your assets.
Counterparty risk is the likelihood or probability that one of those involved in a transaction might default on its contractual obligation. Counterparty risk can exist in credit, investment, and trading transactions.
In the case of crypto - not your keys, not your Bitcoin. In other words, to trade the spot market with no leverage you have to have your entire trading stack available on the exchange to buy and sell. One can use leverage to mitigate this risk. Instead of having $100,000 sitting on an exchange, you can have $10,000 on the exchange and use 10X leverage. If the exchange disappears or something happens, you only have $10,000 at risk.
This is only true for PROFESSIONAL TRADERS with great risk management. You have to know how to calculate and properly use a stop loss, and have the wherewithal to stick with your plan and not move your stop.
Cascading Liquidations And Bitcoin
I shared this incredible video months ago in the third newsletter. It simply explains the cascading effect that often comes with stop losses and liquidations on an asset (Bitcoin, in the case of this video). I think this is a very important concept to share again and for everyone here who trades in this market to understand. This is a tactic used by large players to trigger orders, causing more orders to trigger and for price to continue in a definitive direction without active orders being placed. This is effectively what happened on Bitmex on March 12th, which almost sent the price of Bitcoin to 0. This is also how short and long squeezes happen.
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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.