Markets, charts, and all the craziness of crypto!
During times of massive uncertainty within a market like we are experiencing now, I thought it might be appropriate to spend a few minutes on reflecting on markets, comfort within a market, and general strategies.
Over invested within a market or avoiding stop losses:
I see lots of posts and receive of comments with that fear or panic sentiment. The first thing I think when I see the panic from an individual is they have entirely too much money invested. We've all heard, don't invest what you can't afford to lose. And while that's true, I think it goes deeper than that. To me it's not about the total amount invested but what you are actually risking within a market. Someone who has $1 million in stocks or crypto doesn't necessarily mean they are risking that amount. Stop losses limit your potential downside and reason why I almost never go without a stop in place. Nobody can predict with certainty what the future will hold in a market so while a person with X amount in a market may not be able to have that amount go to 0 or take a 70, 80, 90% loss; if they are managing their risk then they have no concerns over losing that amount. A lot refuse to sell at a loss and I just find that extremely foolish. If entering a position, immediately assume you are wrong and that was not a good entry point. Have a set risk tolerance of if this position drops to a certain level, you are cutting your losses and putting your remaining capital from that position to work elsewhere. Each day, each hour, each minute your money is tied up in a position, you need to ask yourself if that is bringing you the best return or not. Example would be you enter coin A and over the next few days it drops and you are down 5% and its approaching your risk tolerance level where you decided to cut losses at. First - have a reason for that spot to be your cut losses zone. Is it a support zone? A Fib line? A moving average that previously was support? Etc. And recognizing if that level caves, there is further downside to be expected. This gives justification for why you'd cut losses and avoid giving the market more money back. During this process you should be scouting other entries or be prepared to hold in Fiat or even in BTC if that is where you shelter your capital. Regardless, having a plan keeps you prepared and allows you to avoid the 20, 40, 70% losses some have experienced this year.
Markets:
Markets go in cycles. Nothing goes straight up or straight down. Markets go up, down, and sideways constantly and figuring out the bigger picture of which cycle a market is in is crucial. Markets can and will beat you down, they will toy with your emotions, and they can also make you feel like you are on cloud 9. The use of TA has allowed me to stay significantly calmer within a market space as volatile as crypto. I hear constantly TA doesn't work or TA doesn't work in crypto yet then I see those same people panicking or posting or questioning why is the market dropping? Or then I see some BS article posted of oh look this sh*t exchange that accounts for 0.3% of the market space was hacked and that's why we just fell 15% in the market. I am not saying TA tells all by any means and you can ignore the articles/news out there but don't rely on them and don't rely on TA alone. Look at it all as a toolbox and if you understand market cycles, understand TA, understand relative news out there then it gives you far more tools within your tool belt than Angry Andrew who is out there throwing darts at coins and hoping they go up.
Technical Analysis:
This brings me to my next point of TA. It is NOT some magical crystal ball attached to the horn of a unicorn jumping over rainbows! It is NOT some guaranteed price prediction for anything. What is it to me? It is a tool. It is a way to shift probabilities in your favor for what may happen next within a market. Then I hear but you were bullish a week ago and now you are bearish! This depends on time frames you are looking at and if you are talking short term, intermediate, or long term outlooks. Short term can change very quickly. And charts/markets are constantly moving and with each move, it gives you new information thus you should acknowledge that fresh information and utilize it to see if your market outlook needs to be adjusted or not. TA allows you to use various indicators to help traders and investors recognize what the market may do next. It's a probabilities game. I often compare it to poker or blackjack. Yes you can bluff in poker and that can drastically shift your probabilities based on if you are good or bad at bluffing. But with each card that is turned over in poker or blackjack, it should shift your probabilities and helps determine what your next move will be. In hold em if you are dealt A,K of clubs and someone else is dealt a 10, J of diamonds and both are in the hand, the odds initially are in your favor and you should feel confident. But then the flop comes 7, 8, 9 of diamonds. Your betting strategy should be adjusting. Perhaps you felt great with your initial cards dealt but each time a new card hits that table, you need to adapt and adjust your thought process and thus your betting in order to maximize profits or minimize losses. Similarly in black jack. If you have a 15 and the dealer shows a 5, you should recognize the probabilities of hitting or staying vs if you have a 15 and the dealer has a face card showing. Likewise, in crypto each candlestick, each movement of any indicator should force you to reevaluate your own positions and adjust your strategy accordingly in order to maximize profits and minimize losses. You don't need to day trade or anything like that but completely ignoring charts or TA is only doing a disservice to yourself in my opinion. It's your capital and if you want to leave a tool in the shed because you don't believe in it, don't know how to use it, or are too lazy to apply it then that is on you. Simple examples are a coin has run up 45% in 12 days, daily RSI is at 70, and it's approaching a 200 day moving average that acted as resistance previously. Do you then buy? A person completely ignoring the chart or TA will believe sure, it's a coin flip to them on if it's going to be profitable or not on taking on that position. Someone using TA will be far less likely to buy into a position as the risk is too high compared to the reward. To me, the person reading the chart is not gambling or flipping a coin or throwing darts, they are utilizing the tools given to them to make the judgment that the probabilities are just not in their favor to buy here. (This example is BTC in April).
Fighting the trend!
The difficult times of a bear run within a market is people get defensive of the bags they are holding or just keep saying this is the bottom or it's reversing here. We start hearing all sorts of excuses or poor logic regarding why something is happening. Sometimes the market is bearish. It doesn't need to be bullish all the time so don't fight the trend. We've seen buy the dip posts since January! People are completely upside down in positions that are buying this 7 month long dip. It's not a dip! It's a trend change. Market was extremely overbought and it's now correcting. It's not China. It's not the SEC. It's not tax day. It's not the 6th of the month. It's not whatever other excuse you want to throw out there. It's how markets work.
Just My 2 Sats!