The way to trade booms and bubbles is to put a box around volatility and sell when the prices breaks down through that volatility. It works a good 80% of the time. These are the kind of odds you want when big profits are at stake.
Sometimes the price can break even the most generous volatility range and then bounce up and race away again. That’s tough luck and all part of the life of a trader. At least you get to keep a lot of your profits.
I’ve drawn a few examples of this box for Bitcoin in articles here and this is a recent example. You would be doing OK if you bailed out when this box was broken.
However if you are a bull and you want to know what next, what is the picture? Unfortunately you have to put your box here: This means BTC has to get moving sharply up to give you hope and the bounds of prediction are ridiculously wide.
A hour or so after I wrote this Bitcoin jumped $1000 a coin in a flash, but the following still holds. So what to do?
If you are a trader, well you are going to have to trade the volatility and in the end you don’t care about price levels you care about swings. There will be a lot of them and they will be huge. If you cant make money out of that, you shouldn’t trade at all.
For position traders, ie people looking for the near term direction, you are out of luck. One certain thing about this level of volatility is that it is anyone’s guess. If you think of this chart as a measure of signal to noise ratios, you can see the levels of noise are huge. That make predicting direction extremely difficult.
For investors and I take it these people don’t question the long and glorious future of BTC its just a matter of when to start acquiring more. As a buyer down around the $4000s, Im loathed to buy much at these levels, but will certainly pick up more at and below $8000.
I do not believe this year’s rally is a 2017 after-shock, I believe its just the beginning of the next move up for BTC. In the short term I expect BTC is likely to be over $10,000 but would not be shocked if I’m horribly wrong and BTC tilted into the dumpster for a bit. (As it happens it is now $10400 about 3 hours after the above screen shot.) If it doesn’t give me a fat buying opportunity in the coming days it’s a high likelihood that we are still on for $20,000, lets say, this year.
In the short term Bitcoin is a wild gamble but in the long term it’s a great investment. It is seldom a good idea to gamble but generally a sensible idea to invest.
So while Crypto skids manically around I’m happy I’m not trading it as that would be very trying indeed. Instead I’m just spectating and wondering if I’ll get an opportunity to get a lot more BTC a great prices.
In these situations you have to do three things:
Be very, very, sure of your opinion.
Manage your risk to be able to absorb being the idiot that got it wrong.
Have a plan.
Then you can sit back and pilot the journey. A one thing is for sure its going to be a bumpy one.