The Wolf Den #62 - Weak Bitcoin, The Economy, "Stonks" And More
Bitcoin
I am once again flat - I have no Bitcoin trades open. I had two profitable longs and am now sitting on the sidelines waiting to see what happens. It does not look spectacular at the moment, and we all know that people love to panic sell everything when the stock market looks weak, which is the case today. All of the larger time frame charts I have shared are still relevant, so I will not go deeply into them again. You can revisit Tuesday's newsletter.
The ascending wedge on the daily is the major pattern worth watching. Bulls do not want to see this break down. The 50 MA on the daily is just below, so if that continues to rise a bounce from that area is probable. Looking at volume, today is likely to eclipse the past few days, with selling looking strong. The biggest volume days in the past few weeks have been red, so we can tell that bears have defended these levels with all they've got.
As you can see, Bitcoin retraced the large move down on the left back up to exactly the "golden pocket," which is the ideal entry for a short (or a long if it's after a retrace after a move up). This is the area between the 61.8% fib and a 65% retracement. The aggressive wick and rejection in that level was a clear sign for me to close my longs and get out of the way. Price has also seemingly lose the 50 MA again on the 4 hour, so I am watching the 200 MA once again, which is where I took my previous trade. That's the red line below.
This is the range that I am really watching. It is drawn from the lows of the BART down to the highs that followed. You can see that price is potentially losing the equilibrium (center dashed line, EQ) of the trading range, although the candle is not yet closed. This would likely signal a move to at least the bottom of the range to test the lows, which would also test the ascending wedge support. Bulls want to see the EQ hold, which does not look particularly likely at the moment. You can see how strong the rejection was at the range top, with a lot of wicks up and strong selling volume.
The Wolf Of All Streets Podcast Ft. Big Cheds
Big Cheds, Professional Trader, Author, and Cryptocurrency Titan has been ahead of the curve trading numerous markets for a decade. From penny stocks and marijuana stock to Bitcoin, his journey is one of strange timing, unexpected luck, perseverance and hardship. In the midst of his battle with stage 3 lymphoma, he saw his popularity in the crypto community grow parabolically - all while Bitcoin was on a historic bull run. Big Cheds and I discuss resisting the silver bullet in trading, Covid-19's blessings in disguise, buying the blood and selling the greed, always remaining positive, the true value of Bitcoin and more. This is a masterclass in trading from two veterans. His story really is a must-listen.
Will The Banks Collapse?
Please read this entire article. The short of it is that the banking system failed in 2008 because of cheap and readily available home mortgages. This time it's an addiction to cheap corporate debt that could trigger a failure. The following is the end of the article.
"The financial sector isn’t like other sectors. If it fails, fundamental aspects of modern life could fail with it. We could lose the ability to get loans to buy a house or a car, or to pay for college. Without reliable credit, many Americans might struggle to pay for their daily needs. This is why, in 2008, then–Treasury Secretary Henry Paulson went so far as to get down on one knee to beg Nancy Pelosi for her help sparing the system. He understood the alternative.
It is a distasteful fact that the present situation is so dire in part because the banks fell right back into bad behavior after the last crash—taking too many risks, hiding debt in complex instruments and off-balance-sheet entities, and generally exploiting loopholes in laws intended to rein in their greed. Sparing them for a second time this century will be that much harder.
If we muster the political will to do so—or if we avert the worst possible outcomes in this precarious time—it will be imperative for the U.S. government to impose reforms stringent enough to head off the next crisis. We’ve seen how banks respond to stern reprimands and modest reform. This time, regulators might need to dismantle the system as we know it. Banks should play a much simpler role in the new economy, making lending decisions themselves instead of farming them out to credit-rating agencies. They should steer clear of whatever newfangled security might replace the CLO. To prevent another crisis, we also need far more transparency, so we can see when banks give in to temptation. A bank shouldn’t be able to keep $1 trillion worth of assets off its books.
If we do manage to make it through the next year without waking up to a collapse, we must find ways to prevent the big banks from going all in on bets they can’t afford to lose. Their luck—and ours—will at some point run out."
Trading Mistakes That Will Leave You Broke
The crypto market has extremely low barriers to entry, meaning anyone with an internet connection, a smartphone or a computer and a bit of starting capital can theoretically become a trader. Sadly, most of these beginners learn hard lessons and go broke. Here are 10 common mistakes made by beginning traders that you should avoid at all costs.
Starting with real money rather than paper trading
There is no reason for a beginning trader to use real money when there are endless resources and platforms for paper trading, including Tradingview. Anyone interested in becoming a professional trader should first develop a system based on a simple set of guidelines for their entries, exits and risk management. This should not be done with actual money. Paper trade until you are ready to lose your mind, then paper trade some more.
Trading without a stop loss
Beginning traders tend to trade emotionally, which manifests in refusing to quickly accept losses. The most essential skill that a trader must possess is the ability to accept a loss and move on to the next trade. Failure to do this is the main reason traders lose money. Set a stop loss, and do not move it when the trade goes against you, as this behavior is likely to blow up your account.
Failing to maintain balance
Successful traders maintain a balanced portfolio. Personally, I only have 10% of my wealth in crypto. Within my crypto portfolio, 70% is long term holds (heavily weighted to Bitcoin), with 15% in cash and 15% for trading. I only trade with 15% of my portfolio in most scenarios.
Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it may force you to sell the asset class that is performing well and buy more of your worst-performing asset class. This contrarian action is very difficult for many novice investors.
Adding to a losing trade
Investing and trading are different! Investors average down positions in fundamentally sound assets with a long time horizon. Traders have defined levels of risk and invalidation for their trades. When their stop loss hits, the trade has been invalidated and they should move on to another asset. Period. Never average down as a trader.
Failing to keep a trading journal
Successful traders have a plan. Part of trading with a plan is holding oneself accountable for your actions. The only way to do this is by recording the details of a trade. This is the best way to learn and avoid repeating trading mistakes. Keep a journal and refer back to it. Record your thought process, emotional state and the trade results. It will help you immensely.
Risking more than they can afford to lose
In crypto, people are drawn to the idea of earning life changing money by being in the right place at the right time. As a result, they go all-in on crypto, risking everything on what is effectively a lottery ticket.
Being undercapitalized
As the saying goes, it takes money to make money. Many beginning traders are blinded by the promise of making boatloads of cash without leaving the comfort of their couch. This is a false reality unless they already have significant capital to trade with.
A trader who wants to be a professional needs to be able to support their entire life with trading - that means their profit must cover their living expenses, without eating into their trading capital. In most parts of the world, this requires at least $50,000 - $100,000 to trade with, and a steady profit of 10% monthly.
In reality, this is very difficult to achieve. As a result, many beginning traders find themselves under a great deal of stress when their expected trading returns fail to align with the actual results they produce.
Acting on trading patterns and indicators that are not clearly understood
Beginning traders are terrible at technical analysis. They often identify patterns on a chart that are not there or are incorrect based on context and chart placement. Beginning traders should develop a very simple system for trading and avoid making decisions on patterns or indicators that they do not fully understand. Start with simple support and resistance, or indicators that are clear like exponential moving averages.
Following the herd
Another common mistake made by new traders is that they blindly follow the herd; as such, they may either end up paying too much or FOMOing into a hot coin. Experienced traders are accustomed to exiting trades when they get too crowded. New traders, however, may stay in a trade long after the smart money has moved out of it. Novice traders may also lack the confidence to be contrarian when required.
As previously discussed, most cryptocurrency traders are blindly following calls by strangers on Twitter. There is no surer path to financial ruin than spending your hard-earned dollars on assets being shilled by avatars who are likely manipulating you for their own profit.
The bottom line
Trading is hard. However, if you are properly capitalized and take the basic steps required to learn trading and risk management, one can succeed and become profitable. The key is to have a plan, and no matter what happens, stick to that plan.
Stablecoins > SWIFT
One of Europe’s leading blockchain banks is swapping out SWIFT for the USDC stablecoin.
This confirms my recent musings on "crypto as money" and the widespread use of stablecoins to transact. I foresee a lot more news like this in the future - banks adopting stablecoins to send money, especially across borders. As I have mentioned before, it makes little sense for a bank or institution to use a coin that changes in value - if you want to send someone $100, it can be worth $50 by the time it arrives.
This is really starting to look like a nail in the coffin for XRP, specifically, but more broadly for the general use case of Bitcoin and other non-stable currencies as money.
Institutional Money Is Here
This is massive "news" and confirmation of what we have already been discussing - institutional money is here. It's interesting to note that retail clearly led the 2017 bull run in crypto, with google searches of Bitcoin going parabolic and Uber drivers telling their customers about the "new paradigm." Institutional money was barely involved in that bubble. In 2020, Institutions (Grayscale as the best example) are buying and holding crypto, while retail is largely on the sidelines.
The big money is here, which is incredibly bullish.
Side note - retail is now potentially leading a new STOCK MARKET bull run, with institutional investors on the sidelines.
What a world.
That said... read on.
Retail Is Buying "Stonks" Like Hot Cakes
As recently as, well, yesterday, I was openly doubtful that retail was really having a major effect on the market. There are a lot of very smart people who disagree with that assessment, so I am coming around to the fact that maybe the "Robinhood Effect" is real. We are seeing a number of stories emerging of people taking their $1,200 of "free money" from stimulus and dumping it into "1 dollar stocks" on Robinhood and other platforms, driving the price of assets like Hertz through the roof.
Is there anything more "2020" than this phenomenon?
Even Goldman Sachs is saying that retail is causing hedge funds to stop out of their trades.
This story NEVER ends well. It would be a major aberration from history for this trend to continue. We know that none of these new "traders" have any risk management skills, so it's easy to expect that they will lose it all and more.
As the market threatens to drop today, we will start to see how the newbie Robinhood traders and Bar Stool fanboys react to the first sign of trouble in the market. Will they panic sell before the market rises again? Will the market continue to dump and they will hold and lose everything they gained?
It won't be pretty.
Don't Be A Victim Of A Crypto Scam
Binance put together a great list of 5 common scams in the crypto space and how to avoid them. Read the article, I have little to add!
Unemployment Numbers Are Fake News
"A “misclassification error” caused the overall unemployment rate to be lower than it would have been otherwise, the department said in the May jobs report, released last week. It was the third straight month the department issued such a warning."
In other words, the government cooked the numbers to make them look good. Obviously. As with every Thursday, weekly unemployment numbers were reported in the United States, with 1.5 MILLION more people applying for unemployment benefits.
If you can make the math work, then you are a magician. The government is lying.
Altcoin Trades
Not particularly interested in alts until Bitcoin makes a decision. I am in both TOMO and TCT from the last newsletter - TCT looks weak, but no reason to exit for now. IOTA is sitting on support, the area that I showed was interesting - I have not entered, but there's an argument for a taking that trade now with a tight stop. Again, I am not, Bitcoin looks weak.
You can revisit all of these from Tuesday, as nothing has changed. POWR was a chart request that I have moved here, because I like the setup, if it can break resistance. VET did a casual 2x from our recent entry - ZIL did a 3X. ERD went bananas. BAND was insane. There have been some ridiculous trades that we have ridden together of late - it just seems that they never happen on Thursdays! If the market looks better tomorrow, I will send a Friday edition.
POWR/BTC
This has flipped the EQ (center) of the smaller blue range to support and is testing the most important line on the chart - that descending resistance. A break should send price to the top of the larger range. I will be watching this closely, and would likely enter a retest of that descending line as support, if I can get it. We will see.
My Recommended Platforms And Tools
Voyager
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
Phemex
This is where I trade with leverage and can also trade spot with no fees.
RoundlyX
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
TexasWest Capital
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.
Choice IRA by Kingdom Trust
Self-Directed IRA for Americans - allows you to invest in Bitcoin and any other asset for your retirement, with all of the tax benefits of a normal IRA.
Efani
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.
A new crypto rewards debit card that I have been testing and loving.
BlockFi
BlockFI is where I personally store part of my long holdings. They offer up to 8.6% annually, compounding, depending on the asset (BTC, ETH or GUSD), which is much better than any legacy savings account or investment.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
Chart Requests
BAND/BTC
This is a PERFECT example of why you take profit at your target and follow your plan. The most recent trade I shared on this pair is still on the chart - you can see that the bullflag broke up, slightly exceeded the target and has dropped from there - hard. Right now, I see nothing of interest on this pair. Key levels are marked with some fresh resistance above and area of interest below. For now, I see no reason to enter this coin, unless you are looking to catch a knife at support - 139. That could work out well.
BCPT/BTC
I chose to zoom out on the chart, because this massive descending wedge jumped out at me on the daily. It's impossible to trade it now, but it is valid with 2 alternating touches up and down, which means price should eventually exit the top. When that happens, the target is the top of the wedge at 650. When I zoom in, the chart is really choppy and I was struggling to see anything worth drawing. It's clearly trending up from the bottom of the wedge at the moment, but I personally would not trade this until it breaks the top.
BOLT/BTC
Amazing. This broke out of the range and actually hit the target that I drew last time this chart was requested. I was not paying attention at all, because this pair trades on KuCoin. I have drawn additional targets above... but... I would have definitely exited my position at 4637. If you are still in this, today's close is very important. At the moment, we have a clear bearish SFP, with a wick above the previous major swing high. You do not want to see candles closing consistently below that level now. A close above in the coming days would indicate that continuation is likely.
BQX/BTC
I think everyone knows that I love Voyager. Thrilled to see the coin moving so well (and their stock has doubled on the Canadian Stock Exchange). This looks bullish, but I cannot see an immediate entry. Daily RSI is overbought with some potential bearish divergence (not shown), so I would not be surprised to see some pullback. Dips do look like they are for buying on this pair, with a clear break of that black descending resistance. A retest of that as support could be an awesome entry, if it happens. Otherwise, we want to see resistance above flipped to support. As a trader, this is currently between levels and in a no trade zone.
CELR/BTC
Nothing has really changed on this setup. Still looks macro bullish with the break of the descending blue line. It has formed a new clear ascending support line, so for me anything above that remains good. A test of that could also be a good entry with a stop a bit below. It has only retrace the move down to the 23.6% level so far, so it should theoretically continue up to at least the 38.2% (42 sats) if not further. This is moving nicely, slowly. Above 33 is also a positive.
DLT/BTC
DLT is testing a key level right now, which it needs to hold as support - 437. The safer entry on this would be a break of the descending wedge resistance, as this would target the top of that pattern. Other areas of interest are marked as well. For me, a break of the wedge is the trade worth looking at.
FUN/BTC
Bitcoin has temporarily ruined the "fun," but this pair was moving really nicely and should continue to do so if the market allows it. The break back above the ascending black line and key red level are both very bullish. A retest of those now could be great entries with solid risk reward. Easy to take a small loss if price starts closing candles below.
IOTX/BTC
A bit disappointing, but this was still a nice trade. I took some profit near the top, then stopped out of the rest in slight profit when price continued to drop. It is currently retesting the top of the old trading range, which "should" hold if this is going to continue up. To be safe, I would personally wait for a break of that fresh descending black resistance to signal that this small move down is likely over. You don't really want to see this closing candles below 50.
KNC/BTC
Sweet moves. I was not in this and was not watching, but it did follow the chart that I shared previously for a subscriber. Beautiful breaks through 2 lines of descending resistance after holding the pink support.
Zooming out, you can see that price is struggling at a key resistance level, 2100. I personally would not dare trade this now below that line and would have definitely taken profit it there if I was already in. If price fails to close today above 2100, we will have 2 bearish SFPs on the daily - wicks above and closes below. I would look to lower levels, especially the top pink box, as potential areas to enter if this retraces.
LTC/USD
These is still absolutely nothing to see here. This chart has not changed in weeks - I have reviewed it a few times. It is currently chopping it's way sideways. I would be interested if it flips the top red line to support, or test the bottom red line as support. Really want to see the descending broadening wedge broken, meaning a break of the upper white line.
MATIC/BTC
I moved the descending black line to the right from the previous setup - seems this became a more important resistance which has been broken and retested as support. That said, price is still ranging sideways and struggling to get into the top half of the range. I think this has a lot of long term potential, I am personally in this trade. But as I said last time, it could drop before going up, which we have already seen happen.
NIMIQ/BTC
Yikes. This has pump and dump written all over it. Parabolic up, epic drop down. This rarely end well. Not much price history, but I would look for a drop to the black line drawn below. Parabolic moves up usually retrace back to the 78.6% fib, which is just below that black line as well. This looks like an epic blow off top.
RDD/BTC
Keep it simple stupid!12 is the key level on this entire chart. If it holds, and price can break the descending black line, this should head back up. If it breaks, not interested.
REN/BTC
This took some time to develop, but did exactly what the chart indicated. It bounced hard out of that demand zone after testing it all of the way to the bottom. 50% of my orders filled for taking profit, most recently today at the green line. This daily candle looks potentially pretty ugly, but I like my entry and will ride this for a bit. I really want to see price trading above that dashed ascending line, the center of that channel. Ultimately, I am looking to visit the top of the channel if that happens.
ROKU
This trade like an illiquid shit coin - it's really unbelievable to follow. Presently it's a tough read, so I would look for a break of the descending black line to signal that this is likely to continue up. The top blue line is still the real key to continuation above the all time high. I have stayed away from this of late - just too volatile and irrational.
TFUEL/USDT
Pump, meet dump. I have never looked at the USDT pair, but it's comical. After that huge move up, everyone has clearly panicked out and continued to sell down. A move that large is expected to retrace 78.6%, so between 5250 and the 78.6% would be a logical place for at least a reactionary bounce. Still, hard to want to trade this after looking at the chart.
TNB/USD
Kind of strange looking at the dollar pair for this. Very low volume and illiquid. I chose the weekly, because the areas of resistance are very clear on this large time frame. Also, the 50MA has never been breached to the upside in it's existence, and price is currently trading right on it. Above that and 2579 would turn this far more bullish.
USD/ZAR
I prefer large swing trades when I look at forex, so I chose the weekly here. I would watch the weekly close very closely - the dollar has shown strength again today with the stock market dropping, and could be looking to reverse against the Rand. If this prints a hammer (as it appears now) when the week closes, the downside could be over for now. That said, a trip to the bottom of the channel and the 50 MA would be an amazing entry, if it happens.
VIBE/BTC
Floating in a bit of a no man's land here. For me, I would not trade this until it breaks out of that macro descending wedge, which is much higher than current price. That said, anything above 123 is bullish and should have this continuing up. That's a key support level that has held and been flipped.
ZIL/BTC
3x since our entry! What an epic trade. I am almost entirely out of this, just holding a 15% moonbag in case it continues. At this point, it's hard to chart this - but if history is correct, this should have a pretty major retrace in the near future. Hard to time the top before that happens, so for now I have made enough money and can't find a reason to throw more at something so parabolic.
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.