BASIS SAYS BEWARE OF NEXT DIP . . . but doubt we will get it!
Last October I was bullish and I had been bullish all year each time the market approached or broke down through $6,000. . . now bear in mind I am usually a position trader . . . and because we had no trending market in 2018 (except choppy down) I treaded water all year and considered that a trading victory . . .although I did trim (take profit) all the way up in the latter half of 2017 and on rallies in 2018 acquiring other hard assets. My current position in bitcoin is far less than half of what I owned in December 2017. More on Dollar Cost Averaging in Reverse latter.
That changed in late October 2018.
While I remained long as a trader I warned against buying the next test of 6,000.
And fortunately I got short at 6400, added to it at 6,000, an again at 5,500 on other indicators. And finally covered well under 4,000. This one trade turned 2018 from a break even trading year into a profitable one in terms of bitcoin (not in terms of fiat dollars). One large successful trade makes up for a plethora of small losses.
Just as basis kept me bullish on each dip testing 6,000 in 2018, basis got me bullish under 3500 and indicated a break below 3,000 was unlikely.
Bull markets take different forms. Some start with blow off move to the downside. . . what others call capitulation. Some believe bitcoin has capitulated, most do not. I understand both positions. . .
Other bulls start from quiet sideways markets. This is what we have now in bitcoin. This is why so many were so bullish at 6,000. We had the quiet sideways, but early phases of a bull market leave most behind. Weak buyers above 6,000 had to be taken out before we could reverse. Further, even those who understand how bottoms are formed, believe a longer period of sideways is required. I get it, but . . . this is bitcoin.
I have no idea where the market is going and trade accordingly. Again we have ranges (guesses) as low as under $1000 and as high at 10 million. I haven’t a clue, but do not rule out either scenario. I do not price predict and consider it a silly exercise.
I do define trends. . . . but it is just that . . . a definition. Above two week high bull market, below two week low bear market. But this is simply a plum point or pivot point.
And since August the market has played with these pivot points with no direction, except for the break from 6400 to 3100. So knowing these things how can you position yourself?
Well, this not an easy task.
Remember I had a substantial long position at the Unconfiscatable Conferece in January and got stopped out on the drive home from Las Vegas. . . not because I got bearish but for money management reasons alone. My only mistake is I got a bit too heavy too early. The plan was to establish a base and add to it substantially after taking out the two week high.
But since I was stopped out, I was now forced to establish a new base on the sell off after taking the two week high. When we turned around I stepped back in. . . but with a smaller position.
This time I did not get stopped out . . . rather I used Goat Stops.
By this I mean I did not have on the full position I wanted, I trimmed on the rally, reentered selloff and rather than placing stops I added again to my position under 3700 (filled) and had additional resting orders under 3660 (not filled) and 3600 (not filled) . . . just in case we tested the two week low.
Do I have resting orders there now?
Nope.
Trading is dynamic. We got the rally. . . a market that acts like it just can not go up (something Ted Warren taught me), will go up. Notice how hard it is to get long. It wears you out waiting. A minor sell off disheartens. That is by definition the early stage of a sideways bottom. If we rally to 5,000, 6,000, 8,000, 10,000 or test the highs at 20,000, the recent action will look like a no brainer as the place to purchase bitcoin. That is hindsight.
But are we going to any of these levels? I don’t know. I have no clue and don’t be fooled . . . no one else does either, so trade accordingly.
What can be said is we pretty well took out people who bought above 3800 and stopped out all those who bought at 3550 and did not want the position to run into a loss. . . so we can now trend upward without the corrections we have been seeing.
If we continue up now . . . there will be few dips. . . and the quarter should end well. Only now will I raise my stops and I will not buy a dip except from substantially higher levels. . . and will trim and trade in a small way as we go.
Hope this helps.
UGLY
PS: Richard Heart’s Hex creates a new dilemma for Bitcoin Standard Bearers. Will exchanges make a claim for it with your bitcoin? You bet they will. Will they then pass it on to you?. . . . a few might, but most won’t. Will the exchanges then list Hex to unload their inventory of shit? Yup. This is a disaster waiting to happen. Again, bitcoin is lousy cash, sucks as a store of value, but remains an unconfiscatable borderless speculative investment. . . very interesting times. If we continue to rally this will be known as THE HEX RALLY.
