BTC - Trading Chaos vs Investing in the Trend
Updated
Hope everyone had a great Christmas!
BTC' is the main driver of these markets as it is the heaviest weighted coin in cryptos. Where lulu goes so does the market. Now this does not mean markets do not rotate from blue chips to speculative coins (we saw that this weekend) but overall the market reacts to bitcoin' one way or the other.
So I get an alarm this morning and wake up to a nice little breakout. Now we have been sitting on 30%+ cash since last Thursday so nothing like getting a signal the bulls may be back from vacation early. The chart is pretty simple, we broke the downward trend channel with strength (RSI above 60) so I went through and started adding some positions back that I had sold in the event we pulled back further. Did I go all in here? NO! I still have a descent Cash position. If you read MarcPMarkets column the other day, forming bad habits now, will eventually result in that feeling of OHH @#$% feeling. So we stick to our plan and our strategy, and are picking up some coins we wanted to add, adding back to ones we shaved off, but of course keeping some cash which limits our liabilities in the event this is a fake break. Patience and money management is key here!
So now that we broke the really short term down trend (magenta line) as well as the first resistance line (in red at 14850) we are pulling back which is normal. I'm looking for a break of 16k to add and then a break of $18500 to add some more. Why not just go all in here. Well first I'm long term, and though I add trades, I do not trade these markets. We could still very well correct and entering a large positions now can lead to large loss later. The key is building a position and adding to an uptrend not "guessing" the direction of the trend in the very short term. Corrections are difficult and should not be traded. My buddy Phil and I discussed over the weekend that the smaller the time frame the more chaotic the price fluctuations. The longer the time frame the trend is much more clear and prices do not fluctuate as much, so below I posted a chart of some trend channels in different time frames so you can see this.
Now I get asked all the time, how do I learn how to trade? The most important aspect of trading and or investing is not the indicators and strategies like EW, Fibb, Bollinger bands, or clouds, its IDENTIFYING THE TREND IN A SPECIFIC TIME FRAME. Most cannot draw simple trend lines which is the most crucial aspect of investing and or trading.
I broke the chart below into several time frames. The long-term trend channel, the midterm trend channel, the short term trend channels, and the most previous trend channel (on a smaller time frame). Now why are these important? Simple, I want to know which trend is still valid. All but the hyper trend channel are still valid! In the chart above I have the same trend channels drawn and though I could keep breaking these down into smaller and smaller trend frames, we eventually get into chaos. This is why timing markets in the short term are impossible. You look to the longer term trends as a guide.
Clearly we are still in medium an longer term uptrend. This is why we do not sell out of our 70% core portfolio as the longer trend channels are
still valid.
Bottom line, you want to always be positioned with the prevailing longer term trends, selling some off into extreme highs, and buying it back during extreme dips. This is why we went down to our core holdings last Thursday. Why trade chaos when you can simply invest in the trend?
As a side note, 2 points are a line NOT a trend, trend lines need 4-5 points to be valid in my opinion.
BTC' is the main driver of these markets as it is the heaviest weighted coin in cryptos. Where lulu goes so does the market. Now this does not mean markets do not rotate from blue chips to speculative coins (we saw that this weekend) but overall the market reacts to bitcoin' one way or the other.
So I get an alarm this morning and wake up to a nice little breakout. Now we have been sitting on 30%+ cash since last Thursday so nothing like getting a signal the bulls may be back from vacation early. The chart is pretty simple, we broke the downward trend channel with strength (RSI above 60) so I went through and started adding some positions back that I had sold in the event we pulled back further. Did I go all in here? NO! I still have a descent Cash position. If you read MarcPMarkets column the other day, forming bad habits now, will eventually result in that feeling of OHH @#$% feeling. So we stick to our plan and our strategy, and are picking up some coins we wanted to add, adding back to ones we shaved off, but of course keeping some cash which limits our liabilities in the event this is a fake break. Patience and money management is key here!
So now that we broke the really short term down trend (magenta line) as well as the first resistance line (in red at 14850) we are pulling back which is normal. I'm looking for a break of 16k to add and then a break of $18500 to add some more. Why not just go all in here. Well first I'm long term, and though I add trades, I do not trade these markets. We could still very well correct and entering a large positions now can lead to large loss later. The key is building a position and adding to an uptrend not "guessing" the direction of the trend in the very short term. Corrections are difficult and should not be traded. My buddy Phil and I discussed over the weekend that the smaller the time frame the more chaotic the price fluctuations. The longer the time frame the trend is much more clear and prices do not fluctuate as much, so below I posted a chart of some trend channels in different time frames so you can see this.
Now I get asked all the time, how do I learn how to trade? The most important aspect of trading and or investing is not the indicators and strategies like EW, Fibb, Bollinger bands, or clouds, its IDENTIFYING THE TREND IN A SPECIFIC TIME FRAME. Most cannot draw simple trend lines which is the most crucial aspect of investing and or trading.
I broke the chart below into several time frames. The long-term trend channel, the midterm trend channel, the short term trend channels, and the most previous trend channel (on a smaller time frame). Now why are these important? Simple, I want to know which trend is still valid. All but the hyper trend channel are still valid! In the chart above I have the same trend channels drawn and though I could keep breaking these down into smaller and smaller trend frames, we eventually get into chaos. This is why timing markets in the short term are impossible. You look to the longer term trends as a guide.
Clearly we are still in medium an longer term uptrend. This is why we do not sell out of our 70% core portfolio as the longer trend channels are
still valid.
Bottom line, you want to always be positioned with the prevailing longer term trends, selling some off into extreme highs, and buying it back during extreme dips. This is why we went down to our core holdings last Thursday. Why trade chaos when you can simply invest in the trend?
As a side note, 2 points are a line NOT a trend, trend lines need 4-5 points to be valid in my opinion.
Note
Note
For those interested in the corrective patterns since it was in one of the comments this is both the bull and bear counts in my opinion 535 or 533. One is bearish the other bullish. Which one happens, well only time will tell. Note
Keep in mind every abc 12345 can be broken up into fractals but the overall pattern is what is important unless your scalping or day trading.Note
Concerning Segwit2x. I have received some feedback from miners and they are not as enthused as some twitter feeds, and think it is a sketchy to say the least. Also be careful not to give out your keys to anyone as this seems to be a scam where they fork and in order to obtain the new coin you have to change wallets which you could lose your coins. Just do not worry about it and do not give your keys to anyone!Pertaining to the chart it looks like we hit both the trend line and the lower channel we thought we may consolidate in the original chart. We would be guessing as to what happens next, so I am just letting the market settle and find some consolidation. No point in being trigger happy here. There are about 4 different wave counts that I like this is the two I like the most. But only time will tell. Be patient and calm! We have said over and over market corrections are difficult to predict and should not be traded especially if your new to trading.
Note
Here is the perfect example of why you do not trade corrections. They are chaotic! Two different time frames same charts, notice how smooth the trend lines are on the right, and how chaotic they are on the left? The smaller and smaller time frame the more un-predictive the next move is, however if we back out the trend is still in tact. I can NOT emphasize it enough! DO NOT TRADE CORRECTIONS UNLESS YOU ARE EXPERIENCED! EVEN THEN ITS DIFFICULT! YOUR SCALP TRADING WHICH IS WHAT MY CHART ABOVE IS BASED ON. SMALL SMALL $50-$100 PROFITS.Note
OOPS HOW SMOOTH ON THE LEFT AND CHAOTIC ON THE RIGHT! DOH!
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