Making 1000% ROE in Bitcoin
It’s been an exciting time for many new traders entering the markets. Since 2009, the US equity markets have been on a tear, rallying to unprecedented highs. The cryptocurrency space has yielded astronomical returns for early adopters.
This is where the problems begin. New crypto traders are at a huge disadvantage because they simply do not have enough trading knowledge and experience to make sound logical trading decisions. This could be said about most new traders, but crypto traders are a special breed of smart-dumb people.
Maybe it’s because of the exuberance held in bitcoin with the run-up to the 20K highs, but there is a serious void in knowledge of basic concepts, like trend, with this new crowd of traders.
Back on May 11th, I decided to take a look at the Bitcoin chart because as usual, kids were crying about the recent move down from the 9Ks. The medium term chart looked fairly juicy to me. I quickly realised why all these kids were crying.
They had formed a bias without actually examining the medium term trend. Being the generally thoughtful guy that I am, I made a post on tradingview and shared it with a few crypto groups that I interact act with.
I didn’t go into much detail on the original post, but it was clear to me that momentum had been eroding since approximately the 16th of April. Momentum erosion is a fundamental aspect of trading.
It happens on all timeframes and its purpose is to slow down trend for reversals and retracements. The Wyckoff and Dow Theory worlds call it distribution, which is from where I borrowed.
I’m continually amazed at how little common sense people have when it comes to analyzing trend.
How many people have actually taken the time to read the definition of trend? Here’s what stockcharts.com has to say:
Trend: Refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend. A trading range is characterized by horizontal peaks and troughs.
In this intra-day 1600 tick chart of crude oil, how clear is the trend? Are the peaks rising or falling? Doesn’t it remind you of a set of stairs? Did you notice that price never managed to get above the top of the prior stair step?
Trend: : the general movement over time of a statistically detectable change.
If price managed to get above the top of one of these stairs for very long, wouldn’t that indicate that price has potentially started to change the trend? You know… going back upstairs instead of coming down?
Ever walk halfway up the stairs in your house as a kid, only to have your parents yell at you to come back down because dinner was ready? Same thing happens in markets.
So what was the result in our Bitcoin prediction, and how did we discern this information?
When I initially put out this prediction, I could tell the trend had been setting up to head back down the stairs.
“Maaaaaaaaaa, where’s the meatloafffff!”
How did I pick 7200s? Well, where did the trend start from…?
Understanding trend can be profitable…