IN THIS ISSUE
- Crypto Fear & Greed Index drops back to “10” (Extreme Fear)
- Bitcoin sweeps May 19th lows & closes bullish on 4hr
- Ethereum tags 200 Day Moving Average
- Bitcoin Dominance confirms daily bullish market structure
Bitcoin is trading at $32,500 and the fear in the market is incredibly high! Today’s price action was enough to make most newly minted market participants lose their lunch. We opened up the NYKZ trading session with a break down from range lows to just above $28k. Price quickly recovered in the hours that followed and closed the midday 4hr candle back in range. This confirmation of a sweep of range lows was met with a flurry of buying activity.
This has not been an easy range to trade. The reason ranges are so challenging for traders is that they require you to take a position completely opposite to the current sentiment. In comparison to a trending market where buying/selling a breakout when you’re feeling bullish/bearish is often rewarded in the days that follow.
These ranges can drive you insane and leave you broke if you don’t have a plan in place. The bold predictions have been heating up on social media of late in response to the indecision in the market. For whatever reason, such calls (“Still BTC to 100k by Dec.” or “Bear market confirmed! BTC to 20k”) seem to appear at a greater frequency when the market is stuck in a range like this.
As humans, we have an innate need to “know”, and so when the market appears to be in a confused or transitioning state, we’re more inclined to want to make the big call, to ease our own discomfort with not being sure. In a clear bull or bear trend, there is a measure of comfort and consensus in knowing what is most likely to come next.
As traders, we need to still our hand, focus on our plan and try not to get caught up in the emotion of the market, that is exceptionally high on platforms like Twitter right now.
The obvious truth that all traders and investors must confront is that we don’t know. There are too many variables acting on the market for any one party to know for certain what will come next. Thankfully, there is a plan that can be put in place, that removes our need to know.
If you’ve been wrapped up in stress these last few weeks, you’re not alone. I think most would agree that this drawdown has been anything but fun after what had been an incredibly bullish start to the year. So lets look at an option that could remove the stress.
I’m going to outline a trading plan that, that, with a few personalized variables, could be used by anyone, and will likely outperform most traders over time. You’ve likely heard of it before…
It’s called Dollar Cost Average (DCA).
If someone wants to be long on crypto throughout this decade because they have a broadly bullish thesis on this asset class. They need to come up with a plan to acquire some. Without a plan in place, people are most likely to buy or size up at the most inopportune time and conversely, sell or take risk off the table at the worst possible time. We’ve all done it. It can be incredibly frustrating and often results in people leaving the market altogether (usually near the bottom), right before the next leg of their bullish thesis plays out.
What if instead of randomly buying and selling things based on other people’s ideas that they find on Twitter or Youtube (don’t worry if this is you, I started out doing this also, before developing my own trading plan), these individuals wrote up a DCA plan for themselves?
The specific variables will have to be changed to suit individual situations like financial liabilities, monthly budget, income, risk tolerance, age etc. but here is a rough idea of what such a plan might look like. If you don’t have one yet, write-up a trading plan on a word doc and start getting serious about developing it. You won’t regret it!
Using the Crypto Fear & Greed Index (CFGI), which is a tool that was designed to help market participants spot opportunity and counter trade the broad emotional state of the market, I’ve come up with a Time, $ amount and Index score DCA plan.
Example – Based strictly on Bitcoin for simplicity’s sake (Variables are bolded)
I have $10,000 cash available that I would like to invest over time with a time horizon of 2-3+ years.
If the CFGI = “Fear” I will buy with 1-2% of my available cash every week on Tuesday at 1:00PM.
If the CFGI = “Extreme Fear” I will buy with 1-2% of my available cash every 3 days at 1:00PM.
If the CFGI = “Greed” I will sell 1-2% of my available Bitcoin every week on Tuesday at 1:00PM.
If the CFGI = “Extreme Greed” I will sell 1-2% of my available Bitcoin every 3 days at 1:00PM.
Above is a very simple (albeit very boring) DCA trading plan. Boring isn’t a bad thing though. Sure, I would miss out on the insane rush of dopamine that comes with longing my longs during extreme greed cycles. But I would also avoid the flood of cortisol that accompanies prolonged bearish cycles. In the end, this is a +EV trade-off since we know that bottoms take much longer to form than tops!
I would buy gradually all the way down and sell gradually all the way up. I would never buy the bottom or sell the top and I’d have to endure the FOMO that comes with hearing stories of others making it BIG every other day during the extreme greed phase. But I would have a solid average entry price and “almost certainly” a higher average exit price. (What you don’t often hear about is the stories of people who trade without a plan and lose everything, which sadly, is much more common).
There are other variables that could be included like HTF market states based on moving averages, market structure or any other technical analysis tool that makes sense to include.
This could also just be used for part of an overall portfolio while taking a different approach with a smaller, active trade account for example. All the excitement of taking risk in the market, without the large weekly swings on my portfolio’s equity curve.
Regardless of how this ends up shaping up, discipline will be of paramount importance. Breaking a rule even once, completely invalidates the data and opens a flood gate of potential issues in the future. If I was using this plan, I would leave room for adjustments along the way, but I would make sure that those adjustments are small and gradual and continue making them until it fits, then settle in and enjoy the ride.
If you’re feeling a bit lost right now, or stuck in a state of deep regret, I’d strongly recommend stepping away for a few days or weeks and before stepping back into the market, developing a plan like the one above. Whether it’s DCA or something a little more advanced, just make sure you have a plan!
The market isn’t going anywhere, but your capital will if you don’t take care of it! The market does not exist to enrich you, it will take away every dollar you have if you let it. This is war, and a trader’s weapon is their trading plan. Do not trade without one!
Now to the charts…
Bitcoin reclaimed the range lows on the 4hr after sweeping the May 19th low this morning. This range is therefore still intact and looks bullish in and of itself. The low we made this morning is a clear invalidation of this idea, after sweeping two key lows, it should NOT trade back below if bullish. If it does, I will be cutting the spot BTC that I bought today after the bullish 4hr close.
A close above $33,000 on the daily today would be ideal for the bulls.
The “Death Cross” fired this week which occurs when the daily 50 MA crosses below the daily 200 MA. This could mean that we’re in for more downside later this year. I generally don’t trade off of this signal because it’s on a higher timeframe than most of my trading and is a lagging indicator. But I understand many people are talking about it and you might be curious to hear my thoughts.
My plan with regards to an MA cross like this would be to only react by, in this case selling, when price comes back up to tag the daily 200 MA from below. As you can see on this chart, the actual cross is usually followed by a rally, back up to test that moving average within 30-80 days.
In 3 out of the last 4 occurrences, waiting to exit there, resulted in a 42% and 37% move to the upside following the death cross signal. In the one instance where price would have been lower, it was only 8% below where the death cross occurred.
I like those odds. I may look to cut some spot BTC on the underside tag of the 200 MA when we get it, but that will depend on what is happening with price locally when the time comes.
The best indicator in crypto for high timeframe swing trading in my opinion is the BTC HashRibbon. I can’t say exactly what happens behind the scenes, but in a nutshell, this indicator signals “Miner Capitulation” when the ribbons cross bearish and then sometime after will fire a “Buy” signal when the ribbons cross bullish again.
Historically speaking, entries made in the days following the Hash Ribbon BUY have done incredibly well over a period of months. We’ve gotten the miner capitulation signal now, likely because of the mass exodus of Chinese Miners from the network.
I expect most of them will move and setup again in other jurisdictions, and that we could get the next buy signal sometime this summer. Price could be much higher (or lower) by then, but with this plan in place, I’ll know what I need to do and will execute. When that fires, I will initiate an aggressive DCA strategy with the remainder of my dry powder.
The USD Index rallied throughout the past week and added to the downward pressure on all assets traded vs. USD. It has arrived at trendline resistance and should be headed for more consolidation in the coming weeks. I’ve outlined my thoughts on the chart.
The rule of thumb here is DXY uptrend = bad for BTC, downtrend = good for BTC.
I’ve got alerts set at key levels and will likely go back into a risk off position in the market if we break above this trendline in earnest. For now I’m long from near the range lows following todays recovery with invalidation at local lows ~$28k.
Ethereum tagged the .618 Fib, drawn off of its high timeframe range today while briefly breaking below the 200-day MA. I still think BTC will outpace in the coming weeks, but the long open interest on Ethereum exploded upwards this week (Return of the ETH Chad Whale from Q2 2020?) so I bought back some of my Ethereum at the 200-day MA, again, with invalidation at todays low.
I’m looking, initially, for a move back up to around $2,200 to retest the support we lost earlier this month.
ETH/BTC is trading below a key weekly level and needs to bounce back fast if it wants to avoid confirmation of bearish market structure. If we close out the week below this level, all signs point to continued downside in the mid-term unless by some miracle, that turns out to be a savage fakeout and EIP-1559 saves us and for the first time ever, the new liquidity cycle starts with an Ethereum rally (*sarcasm*, this is highly improbable).
At that point, it could still go up vs. USD if Bitcoin rallies, but likely would not keep pace with it. Bitcoin is the strongest horse in the market right now, and that’s par for the course while the market is fearful.
As you would expect, the opposite is happening this week on the Bitcoin Dominance chart. At 47.63%, BTC dominance is in position to confirm bullish market structure on the weekly that would likely prompt a move up to anywhere between 53-61% in the coming months.
Any one of these weekly resistances could prove to be the end of the move, but it’s in the markets nature to go much further than we expect in any one direction, so I won’t be “waiting it out” in my altcoin if my plan is to accumulate more Bitcoin.
I’ll wait until we get a confirmed bearish market structure on the weekly to start putting my sats at risk in the market again (with the exception of my relatively small bag of Ethereum).
I’ll continue to keep you updated on all the hottest opportunities I can find in the space, until next time, have a great week, and whatever you do, always play from a position of strength!
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The following commentary is provided for informational purposes only and may not represent the views of Hxro Games Ltd. or its affiliates, and should not be viewed as legal, tax, investment, financial or other advice. Digital asset transactions are inherently risky, and you are fully and solely responsible for evaluating your purchasing decisions at your own risk. Past performance is not indicative of future results.
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