The Wolf Den #73 - Alt Season, Bitcoin Shaky, News And More
Bitcoin Thoughts And Analysis
I took small long on the drop at $9,230 and added a bit more at $9,180, which is risky. My stops are below $9,150 or so. I still think this potentially tops out around $9,500 - $9,600, if not already. I could stop out of this trade before I even have time to send this newsletter!
I took a long on the daily, with the idea that it will hold the line at $9,270 and pop back up above that blue line, which I have viewed as a significant resistance and hoped to see hold as support.
We have confirmed bearish divergence with overbought RSI on the 4 hour chart, which has not caused much of a drop yet. That said, this is usually a sign of a top, so I would look for hidden bullish divergence to cancel is out if this does go down. That is potentially there now. This is really what I am watching for on the next close. I want to see an elbow up. If not, I will likely exit at a small loss and move on.
The Wolf Of All Streets Podcast Ft. Isaiah Jackson
Isaiah Jackson, a popular author, bitcoin evangelist and community servant, wrote the well known book ‘Bitcoin and Black America.’ With a new money system in mind, his solution based account of how to repair black communities through the adoption of bitcoin has had a ripple effect across the country.
Isaiah and I further discuss the 3 step plan for bitcoin adoption in the black community, Nipsey Hustle’s contributions to society, implementing bitcoin into churches, discovering bitcoin from a banker in 2013, the banking house of cards, a 2nd edition of his book coming this year and more.
The 6 Stages Of A Trader
Every trader should be aware of this prescient list of the stages of becoming a trader, famously penned by Bo Yoder and Vadym Graifer. Any trader who has been in the markets for an extended period of time can likely attest to the accuracy of this list. The lessons at the end are the true key. Where are you in your evolution?
Stage One: The Mystification Stage
This is where the neophyte trader begins. He has little or no understanding of market structure. He has no concept of the interrelationship among markets, much less between markets and the economy. Price charts are a meaningless mish-mash of colored lines and squiggles that look more like a painting from the MOMA than anything that contains information. Anyone who can make even a guess about price direction based on this tangle must be using black magic, or voodoo.
However, as one begins to observe, read, study, the mess may begin to resolve itself into something that may make sense. Sort of.
Stage Two: The Hot Pot Stage
You scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to “work” pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you’re underwater for the total amount of your stop-loss.
So you back off and study this pattern further. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stop loss.
Practically everyone goes through this, but few understand that this is all part of the win-lose cycle. They do not yet understand that loss is an inevitable part of any system/strategy/method/whathaveyou, that is, there is no such thing as a 100% win approach. When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don’t wait for the “lose” cycle to see how long it lasts or what the win/lose pattern is. Instead, they keep touching the pot and getting burned, never understanding that it’s not the pot (pattern/setup) that’s the problem, but a failure on their part to understand that it’s the heat from the stove (the market) that they’re paying no attention to whatsoever. So instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on.
Stage Three: The Cynical Skepticism Stage
You’ve studied so hard and put so much effort into your trading and this universal failure in the patterns only when you take them causes you to feel betrayed by the market, the books and materials and gurus you tried to learn from. Everybody claims their ideas lead to profitability, but every time you take a trade, it’s a loser, even though the setups all worked perfectly before you played them. And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the “manipulators”. What’s the point in trying to analyze and improve your own trading when there are so many dark forces out to get you?
This excuse-driven blame game is a dead-end viewpoint, and explains a lot of what you find on message boards. Those who can’t pull themselves out of it will quit.
Stage Four: The Squiggle Trader Stage
If you don’t quit, you’ll move into the “squiggle trader” phase. Since you failed with patterns and so on, you figure there’s some “secret weapon”, a “holy grail” that’s known to the select few, something that will help you filter out all those bad trades. Once you find this magical key, your profits will explode and you’ll achieve every dream you ever had.
You begin an obsessive study of every method and every indicator that is new to you. You buy every book, attend every course, sign up for every newsletter and advisory service, register for every trading website and every chat room. You buy more elaborate software. You buy off-the-shelf systems. You spend whatever it takes to buy success.
Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can’t make a decision, particularly since they rarely agree. So you focus on those which agree with the direction of the trade you’ve taken (or, if you’re the fearful sort, you look only for those which will prove to you how much of a loser you think you are).
This is all characteristic of scared money. Without a genuine acceptance of the fact of loss and of the risks involved in trading, you flit around like a butterfly in search of anything or anybody who will tell you that you know what you’re doing. This serves two purposes: (1) it transfers to others the responsibility for the trade and (2) it shakes you out of trades as your indicators begin to conflict. The MACD says buy, the sto says sell. The ADX says the market is trending, the OBV says it’s overbought. By the end of the day, your brain is jelly.
This process can be useful if the trader learns from it what is popular, i.e., what other traders are doing, and, if he lasts, how to trade traps and panic/euphoria. And even though he may decide that much of it is crap, he will, if he doesn’t slip back into the Cynical Skepticism Stage, have a more profound appreciation — achieved through personal experience — of what is sensible and logical and what is nonsense. He might also learn something more about the kind of trader he is, what “style” suits him best, learn to distinguish between what is desirable and what is practical.
But the vast majority of traders never leave this stage. They spend their “careers” searching for the answer, and even though they may eventually achieve piddling profits (if they don’t, they will of course eventually no longer be trading), they never become truly successful, and this has its own insidious consequences.
Stage Five: The Inwardly-Bound Stage
The trader who is able to pry himself out of Stage Four uses his experiences there productively. The trader learns, as stated earlier, what styles, techniques, tactics are popular. But instead of focusing entirely on what’s “out there”, he begins to ask himself some questions:
What exactly does he want? What is he trying to accomplish?
What sort of trading makes the most sense to him? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? Which is most comfortable?
What instrument — futures, stocks, ETFs, bonds, options — provides the range and volatility he requires but is not outside his risk tolerance? Did he learn anything at all about indicators in Stage Four that he might be able to use?
And so he “auditions” all of this in order to determine what suits him, taking all that he has learned so far and experimenting with it.
He begins to incorporate the “scientific method” into his efforts in order to develop a trading plan, including risk management and trade management. He learns the value of curiosity, of detached interest, of persistence and perseverance, of taking bits and pieces from here and there in order to fashion a trading plan and strategy that are uniquely his, one in which he has complete confidence because he has tested it thoroughly and knows from his own experience that it is consistently profitable.
He accepts fully the responsibility for his trades, including the losses, which is to say that he understands that losses are inevitable and unavoidable. Rather than be thrown by them, he accepts them for what they are, a part of the natural course of business. He examines them, of course, in order to determine whether or not some error was made, particularly one that can be corrected, though true trading errors are rare. But, if not, he simply shrugs off the loss and goes on about his business. He understands, after all, that he is in control of his risk in the market.
He doesn’t rant about his broker or the specialist or the market maker or that vast conspiracy of everyone who’s trying to cheat him out of his money. He doesn’t attempt revenge against the market. He doesn’t fret. He doesn’t fume. He doesn’t succumb to hope, fear, greed. Impulsive, emotional trades are gone. Instead, he just trades.
Stage Six: Mastery
At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, research are the focus of his time and his effort. When the trading day opens, he’s ready for it. He’s calm, he’s relaxed, he’s centered.
Trading becomes effortless. He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development. He understands the inevitability of loss and accepts it as a natural part of the business of trading. No one can hurt him because he’s protected by his rules and his discipline.
He is sensitive to and in tune with the ebb and flow of market behavior and the natural actions and reactions to it that his research has taught him will optimize his edge. He is “available”. He doesn’t have to know what the market will do next because he knows how he will react to anything the market does and is confident in his ability to react correctly.
He understands and practices “active inaction”, knowing exactly what it is he wants, exactly what it is he’s looking for, and waiting, patiently, for exactly the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation, then waits, patiently, again, for the next opportunity.
He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics. He acknowledges that market movement is the ultimate truth. He doesn’t try to outsmart or outguess it.
He is, in a sense, outside himself, acting as his own coach, asking himself questions and explaining to himself without rationalization what he’s waiting for, what he’s doing, reminding himself of this or that, keeping himself centered and focused, taking distractions in stride. He doesn’t get overexcited about winning trades; he doesn’t get depressed about losing trades. He accepts that price does what it does and the market is what it is. His performance has nothing to do with his self-worth.
It is during this stage that the “intuitive” sense begins to manifest itself. As infrequent as it may be, he learns to experiment with it and to build trust in it.
And at the end of the day, he reviews his work, makes whatever adjustments are necessary, if any, and begins his preparation for the following day, satisfied with himself for having traded well.
The knowledge proved through research that a particular price pattern or market behavior offers an acceptable level of predictability and risk to reward to provide a consistently profitable outcome over time.
Money Printing 101
Written By: Sahil Bloom in the above Twitter thread.
By now, we have all seen the “money printer go brrrr” meme and have heard about the money printing exploits of central banks. But what is money printing and how does it work? Hint: it rarely involves a physical money printer.
Here’s Money Printing 101!
In the digital age, where money is more often just numbers on a screen vs. true cash tender, Central Banks generally “print” money (i.e. increase money supply) in one of two primary ways.
- Debt Monetization
- Quantitative Easing
Let’s hit the basics of each one.
“Debt Monetization” is just a fancy way of referring to the conversion of debt into money - think of it as you “money-tize” the debt.
The government issues a new bond, the Central Bank buys it.
This gives the government new money supply to finance deficit spending.
“Quantitative Easing” is just a fancy way of referring to the Central Bank buying financial assets from non-government entities in the open market.
When the Central Bank buys, this has the effect of increasing money supply, as it gives money to the sellers of these assets.
So while both Debt Monetization and Quantitative Easing increase money supply, neither one of them involves a physical money printer going brrrr.
More accurately, they print money digitally by buying assets from sellers.
So that’s Money Printing 101. I hope it was helpful!
Is Reopening Enough To Save The Economy?
A blockbuster new study digs into the economics of the pandemic.
This article is an absolute must read, with compelling information from world renowned economists. The ability to sit at home in isolation is an luxury that most people cannot afford. As long as the wealthy remain isolated, the economy cannot recover, regardless of the reopening plans made by governments.
"As long as rich people are scared of the virus, they won't go out and spend money, and workers in the service sector will continue to suffer. Low-income workers — especially those whose jobs focused on providing services in rich urban areas — are in for a period of turbulence. Many of these workers are getting a lifeline in the form of unemployment insurance, but some of these benefits will expire soon if the federal government doesn't act.
Economists have learned from previous shocks like this one that the labor market doesn't just easily adjust to them. Workers have a hard time moving and retraining. For example, after over a million manufacturing jobs evaporated in the Rust Belt with the explosion of Chinese imports in the early 2000s, people stayed in the places that lost jobs and failed to get new ones, and many of them, in despair, ended up turning to alcohol and opioids, with tragic results.
Chetty and his team conclude that the traditional tools of economic policy — tax cuts and spending increases to boost demand — won't save the army of the unemployed. Instead, they say we need public health efforts to restore safety and convince consumers that it's OK to start going out again. Until then, they argue, we need to extend unemployment benefits and provide assistance to help low-income workers who will continue to struggle in the pandemic economy.
Next month, the federally funded unemployment benefits passed by Congress to help Americans during the pandemic are set to expire. This groundbreaking study provides a strong case to Washington to think about extending them."
Altcoin Market Cap
We have spent a lot of time using Bitcoin Dominance to predict the present alt season. Another useful tool is "TOTAL2" on Tradingview, which calculates the market cap of crypto without Bitcoin. It's the total market cap of altcoins. As you can see, it has been in a long downtrend on the weekly. In the past few weeks, it has consolidated in a bull flag under resistance and is now breaking to the upside. This is further confirmation that we are presently in "alt season." Like any chart, this could drop down, test support as resistance or completely fail. Even during alt season, there will be days and even weeks where alts look bad. Alt season could also last another hour or another month, so it's important to keep your risk well managed.
All of that said, this looks absolutely bullish for alts, and it appears that this trend is just starting and should last a long time.
Altcoin Trades
Of course Bitcoin decided to drop a bit before the newsletter! It's making alt coins look shaky in the short term, so I am not going to share many. All of the previous trades are still valid. As I mentioned, even in "alt season" there are times when it does not look great. After the amazing gains of late, this may be a time to be cautious in the very short term. I will share more tomorrow if the situation is clearer.
HXRO/BTC
I love this company and have been watching the chart on exchanges that I have no access to! I have built a position in this OTC, and am very excited about it fundamentally. At present, we have a clear break through descending resistance and price consolidating against resistance at 110. I am watching for a pop up to the next line around 125,
POWR/BTC
This is a setup that I shared before that never confirmed, as price never managed to break the descending blue line. Yesterday it did, and was rejected at the EQ of the blue channel. That was an obvious level of resistance. I am looking for a retest here of the descending line as support, although I am personally in this already on the breakout. Targets are the dashed lines, and the highs of the two ranges.
Is The US In A Housing Bubble?
The short answer? YES. The United States is an a housing bubble equivalent to 2006 - a situation that crashed the world economy. This is a quick yet informative video detailing the reason behind this assertion, and is definitely worth 2 minutes of your life to watch.
Coinbase Is Going Public
This is huge for crypto, as it will have the eyes of the world watching the space. You will see it reported that they are planning to IPO, which is false - it seems they will be seeking a NYSE direct listing. I think this is quite bullish.
From Messari: Today Reuters revealed Coinbase has initiative preparations for a stock market debut that could come as early as this year. According to Reuters sources the company is exploring going public via a direct listing rather than an IPO. The listing will need the SEC blessing, which if greenlighted would be a landmark victory for the cryptocurrency industry. Coinbase was valued at more than $8 billion in its latest private round.
Why it matters:
The listing would make it the first cryptocurrency exchange to go public, and the first major cryptocurrency unicorn to go public outside the mining industry.
The listing will be a big boon to legitimizing the industry. It will force many institutional investors and banks to diligence Coinbase and the asset class.
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. I use both the virtual card online and the physical black card at actual retail (I will do this more after COVID!). They offer 6.38% cash back in crypto, which is really astounding.
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.
They are currently offering 2X interest for a month, which is a huge benefit. https://blockfi.mxuy67.net/c/2059835/849632/10568
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
Chart Requests
ICX/BTC
This was a newsletter setup a couple of weeks ago, nice to see it finally break out! It is currently consolidating above the channel and horizontal support. This looks good, hard to say anything else! Watch to see if it holds support.
LRC/BTC AND LRC/USDT
This looks decent on price action, but has clear bearish divergence on almost every time frame from the weekly down. It's way overbought. I would be very cautious here after such a signficant move and decreased buying interest. That said, a weekly div can take weeks to play out and see price rising tremendously first. I would just play the levels.
There's no price history on the USDT pair, which is why I looked at the BTC pair. One line. Above is good, below is bad.
KNC/BTC
I am massively simplifying this by looking at the weekly. Price is at a key support and resistance level, which will determine where it is headed next. There's bearish divergence with RSI on the weekly, so that could be a sign that this move is exhausted. That said, it could continue up and make the div useless, or continue up, confirm the div and drop from much higher.
Really tough and important spot here, would wait to see how it reacts.
NULS/BTC
Key level here, testing support. Massively overbought bear div sent price down, which was a clear top. Now watch and see if the blue potential hidden bull div can confirm, which would signal likely continuation. I could see taking a shot on this here at support.
OMI (OWENS & MINOR)
I really have no idea what's happening here. Same chart I shared before. It's holding the 50 MA and 200 as support, which is good. It's at the top of the range consolidating, also good. Weekly shows that no candle has closed above that range... the daily has had a few fakeouts. Really hard to gauge what this is doing or will do, honestly. It's going sideways.
TOMO/BTC
This has moved beautifully. I wish I had stuck with it for longer, as this was a trade I posted here near the bottom. Very simple, just play the levels for now. The best entries are either a bounce on the line below, or a flip of the line above.
XLM/BTC
Annoying! I had this lined up as a setup for today, and it went absolutely bonkers before I could post it. Huge descending channel breakout, with a flip of horizontal resistance to support. I can't see buying this now, hard to after a huge move like that. I should have bought yesterday on the breakout!
XLM/USDT
I chose to look at the weekly. This is trading at the most key level on the chart, so not much to focus on beyond that. If it flips this to support, sky is the limit. If it's rejected, expect a drop.
VRA/BTC
Not much happening here. It was clearly rejected a few weeks ago at the descending resistance and is testing this support over and over again. It should be getting weaker. Also, volume is next to nothing after trading with heavy volume for months. I can't see anything on the chart for now.
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.