The Wolf Den #98 - Emotions And Trading
Bitcoin Thoughts And Analysis
Very little has changed with Bitcoin since the newsletter on Tuesday - it's actually trading at basically the exact same price that it was then - $10,440. We did have a drop (look at my trade study below), but this confirmed an even larger bullish divergence on the 4-hour chart. But careful... there could be a hidden bear div forming as well.
Please read the Bitcoin case study in the Education section to see what happened over the past 2 days!
The "bear" case still remains, with a drop to fill the CME gap around 9,600, or further retracement of the large move from $3,600 to $12,500. The 61.8% fib of that move would be around $7,100. Still a healthy retrace.
Always be prepared for what could happen.
We still have a large symmetrical triangle on the daily chart, which I adjusted slightly on the bottom to accommodate yesterday's price action. The real decision will come when we see a clear break in either direction. For now we have a higher low if price does not drop again, which would be bullish. My bias here is neutral, because we have no clear direction.
Here are the divergences on the 4 hour chart. You can see the potential hidden bearish div in red, not confirmed yet. We want to see 4 hour candles closing above the black line to invalidate that.
The bottom line right now is that it could really go either way. Tuesday's analysis is still valid. I am going to remain on the sidelines and not force a trade until I see some clear direction.
Altcoin Charts
This is a rough time to be trading alts still, but the setups that I shared on Tuesday all offered a chance at some nice profits. I'm happy about that! I am presently seeing bullish divergence with oversold RSI on the 4 (sometimes daily) charts of a number of alts. This will be irrelevant if Bitcoin decides to move, but if we can get some sideways action, then altcoins should show a bit of a relief bounce across the board, which could be a nice chance for profit.
I am NOT trying to call bottoms or reversals here. I am happy with smaller gains right now and will move my stops up into profit when I can.
ANKR/BTC
A subscriber requested an ANKR chart, which actually looks promising here. This has not triggered yet, it is an idea!
The daily chart shows the wide view of ANKR, which has just approached a really key support level. If I were trying to catch a falling knife, the 43 area where we are is definitely where I would do it. I am definitely not saying it can't drop more, there's just a decent chance that it will bounce here if alts bounce across the board. RSI is also oversold on the daily (not shown), so eventually there will be some relief - does not have to be now.
Zooming into the 4 hour, we can see clear bullish divergence with oversold RSI, and price is very close to breaking a local descending resistance. This looks likely to go up, honestly. If it breaks that line, I could definitely see taking a trade with a stop somewhere a few sats below 43.
I would proceed with caution, as the market is shaky - also watch for potential hidden bearish divergence to invalidate the bull div. Targets are white lines of resistance/
CRV/BTC
This has done nothing but drop since hitting Binance, so this is obviously a knife catch when there's no clear bottom or support. That said, price just confirmed a sizable bullish divergence with RSI, just above the descending support. This looks like it COULD be bottoming, so I took a nice position on this. I would not want to see it closing candles below the recent low, and the safest entry its to patiently wait for a break of the top descending line. Taking a position here is riskier, so manage the trade well if you choose to enter. As always, resistance lines are shown and can be used as targets.
PNT/BTC
I am staking PNT, so I have a long term position in this regardless. That said, we have a potential bullish divergence with RSI on the daily. I want to see a clear "elbow" up on RSI to confirm at the daily close and I want to see price back above 5069. Those two things would trigger a trade on this coin for me. An oversold daily divergence is often a reversal signal, or at least a sign that the bottom is near. As you know, RSI travels from oversold to overbought and back.
SRM/BTC
Another chart request from a subscriber that could potentially be setting up for a move. This has NOT triggered yet, there is no reason to enter here. Price is approaching a descending resistance from the recent all time high. If broken, this should signal that price is ready to reverse and head back up. That said, if Bitcoin moves, this is unlikely to matter! There's a very local ascending support that price is currently sitting on, which we would like to see hold. Key levels and targets are marked with black lines.
Also note, there was a clear oversold bullish divergence with RSI that signaled the bottom of the recent move. It's a bit late to use that as a reason to trade, but it could have signaled a larger reversal, so it's worth mentioning.
On the more bearish side, the entire thing visually looks like a big potential head and shoulders, so I would be careful on this one in general. It's largely up to Bitcoin.
Trade Management Case Study - Bitcoin
An essential part of being a good trader is taking the time to review your trades , both winners and losers. I took a losing trade on Bitcoin this week.
Notice that I said I took a losing trade, but I did not say that I took a "bad" trade. Losing money on a trade does not make it a bad trade. As I mention often, a good trade is one where you have a plan and properly managed risk. What happens after you enter is beyond your control. "Plan your losses."
A good trade can lose money. A bad trade is when you have no plan, even if you end up getting lucky and making money.
Let's review my losing trade.
As I shared on Tuesday. I took a long position with 10X leverage in the circle on the chart above. My premise for this trade was simple - RSI tapped oversold on the 4 hour chart and creative a bullish divergence with price, albeit a small one. However, I mentioned this on Tuesday - "even if we fall again, we will likely make a bigger bull div, although that is not guaranteed."
That is exactly what has happened. Price dropped and made a larger bullish divergence. You can see that with the second blue arrow on the right of the chart above. Unfortunately, my stop loss was misplaced to accommodate for that.
The trade is shown above on the hourly chart. As mentioned, I entered with a few positions at a cost basis of $10,430, when it looked almost sure that the bullish divergence with RSI would confirm. Price rose from there to the top of the local trading range. I could have taken profit at this point, but it was a relatively small trade and my targets were higher, because I thought we may be seeing a larger reversal. My first target was at $10,630, the 50% retracement level of the big drop. As I mentioned on Tuesday, it is very common to see a 50% retracement or bounce off of any impulsive and sizable move. But I was a bit too greedy looking for the full 50% move in this case. I could have taken a bit of profit lower and avoided being front run.
I talked about this on the macro drop from 12K in the Tuesday newsletter - "My more immediate concern here is that we saw a reactionary bounce from the drop that retraced almost perfectly to 50%. If you have been following me a while, you know that almost ANY large move will retrace 50%. That is usually the top of a bear flag if one forms as well, because further retracement beyond 50% really invalidates a flag. So we could just have a reactionary bounce here before further movement down."
In retrospect, I should have sold at least 50% of the position at the range high near $10,590, but that was not my initial plan. It will be next time.
Since the position was small, I accounted for a potential drop to the lows and actually added to the position at the black line - $10,272. This lowered my cost basis. This is also why I placed my stop as far below that line as I did - because I believe that if we saw a drop to this area, we would see a lot of buying and engineered liquidity - a wick below and a close above. This is known as an SFP, although it's really not a big deal on an hourly chart. That is exactly what happened... for an hour, ha!
Either way, I often add to a position (assuming it still keeps my total loss under 1-2% of my portfolio) very close to invalidation, because the loss on that portion of the trade will be very small. You can only do this if you PLAN FOR IT IN ADVANCE. You should never add to a trade if it increases your potential loss beyond the threshold of your plan.
Either way, I quickly stopped out on the next hourly candle... on a large wick. Then the candle closed well above my stop loss, confirming a larger bullish divergence and sending price up. With all of my planning, it appears that I was the liquidity for the whales in this case. It happens!!! The wick went quite a bit below my stop, but still was nearly the bottom of the move.
For the record, price is currently trading above my initial entry and well above my cost basis after averaging down.
What could I have done differently?
Look at the tweet above. I saw that there was a clear bear flag forming, which altered the premise of my trade. I did not want to "change my plan" mid trade, but I could have very easily moved my stops up below this confirmed bear flag and exited the trade with a very small loss. That would have stopped me out around $10,400. Almost a meaningless loss.
I could have used a trailing stop, which I often do. I turned a potential small winner into a loser. That said, price never cleared a key level that gave me confidence to move up my stop, and I already accounted for adding on a drop. I move my stops ups when there's more profit, generally.
Smaller position size in order to have an even more aggressively wide stop loss - below 10K to be safe.
Take profit earlier at the range high, as mentioned above.
I could have avoided adding to the position at the bottom and taken a smaller loss.
SPAC 101
By Sahil Bloom
The Special Purpose Acquisition Company (“SPAC”) has grown in prominence in recent years, most recently appearing in the news with Bill Ackman’s unicorn SPAC and Nikola Motors’ successful market debut. But what is a SPAC and how does it work? Here’s SPAC 101!
A SPAC is used to take a company public without going through the traditional IPO process. The SPAC is a shell company (i.e. it has no formal operations) that is taken public via an IPO to raise money from investors. It is often called a blank check company.
The founder of the SPAC then hunts for a deal, looking for a private company to merge with. Once a target is identified, the SPAC merges with the private company, taking the private company public, but without the IPO grind. The SPAC effectively becomes one with the target.
What are the primary benefits and drawbacks for a target company? Benefits: Certainty of a deal; Process ease; Flexible structure (warrants, etc.); Lower compliance hurdles - Drawbacks: Higher effective fees; No market check on price.
As with all novel financial concepts, there are some real tradeoffs. Keep an eye on how this space develops as more private companies look for alternatives to the traditional IPO process (e.g. direct listings, SPACs, etc.). That was SPAC 101. I hope it was helpful!
Tim Draper Reveals His Crypto Holdings
In a recent interview, Tim Draper, a well-known Bitcoin bull and tech venture capitalist revealed some of his crypto holdings. Draper owns BTC, XRP (Ripple), BCH (Bitcoin Cash), XTZ (Tezos), and ANT (Aragon). He elaborated - “I’m a believer. I think it’s happening – it’s coming. It’s so important for the world, and I want the world to know it, and I want other people in the world to get on board.” Draper isn’t a small player. He purchased 30,000 BTC years back and continues to be a crypto advocate, investing in a number of companies in the crypto space. Other large players have taken a different approach, that Bitcoin will be the only crypto to succeed and all other coins will fail. Big names maintaining this philosophy include Samson Mow, Jeff Booth, Jimmy Song, and Tone Vays. Only time will tell.
Tesla “Battery Day” Arrives with Mixed Results
The highly anticipated “Battery Day” reveal was shared with investors, shareholders, and super fans, all hosted in a socially distanced parking lot packed full of Teslas that honked their horns for approval. Musk delivered a number of new developments on the Tesla slate. The upcoming price per kWh is expected to reasonably drop and also an affordable Tesla at the cost of $25,000 is expected to go into production. Their plan to design their own battery may be a net positive in the coming years, but it didn't satisfy the one thing on investors' minds.
The publicly circulated “million-mile battery” is the textbook definition of a technological breakthrough that would put to rest competition and concerns around price savings. Unfortunately, the million-mile battery rumor will not be a reality yet, as the event ended without a single mention of this idea that was once in the presentation. Investors and day traders were left disappointed, as shares continued their downward streak with a -10% loss on the day. Tesla is still leagues ahead of its competitors, but not at a comfortable enough distance to take their foot off of the electrical pedal. The Wolf Team believes that Tesla’s moves are an excellent leading indicator for its industry.
The Wolf Of All Streets Podcast Ft. Joe Vezzani
Joe Vezzani is the CEO of LunarCRUSH, a social listening solution that compiles massive amounts of fundamental data from communities across a number of platforms. Raised in a finance family, Joe was poised to work on Wall Street, but the ‘08 crash sent him down an entirely different path into advertising and media. Upon finding Bitcoin early and mixing his new skills with his old passion, Joe and his team developed one of the most useful and innovative products in the crypto space.
Joe and I further discuss growing up as a finance kid, looking for a job in the ‘08 crash, the rise and fall of Lehman Brothers, a lack of fundamentals in the crypto world, developing a platform that understands “Dogecoin is mooning,” millennial farm animals, the Wall Street Suits, the nightmare of taxing Bitcoin, Galaxy scores, Alt Ranks and more.
Chart Requests
FTM/BTC
Our first trades on this coin in the newsletter were below 40 sats - crazy to see that it did a 10x. It's hard to gauge what is happening on lower time frames, so I took a look here at the daily. It appears price is in a massive symmetrical triangle, so a break of either the top or bottom line will likely show us the longer term direction Everything else inside, even though its a large area, is somewhat noise.
It will require patience, but I would wait for a break of one of those two lines to make a decision on a trade, personally.
LINK/USD
Same setup as Tuesday, although price has somewhat bounced. I closed half of my short in great profit, but would consider another one in this area if Bitcoin shows weakness. For now, I see the move up as simply a reactionary bounce to the bigger drop. If it can break above 9.16 it would change my bearish bias.
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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.