4 Different Trading Strategies for the Volatile Crypto Market

Morning Fellow Cryptonians.

Often the market experiences a yo-yo day. Often these kind of days with big market swings are created by breaking news, influencer tweet, and at times government regulations.

This time one of the main causes was not the Elon effect but the Donald effect. Where he expressed that Bitcoin and Cryptos are scams and that they should be highly regulated.

There are other factors of course, one of the main ones was the U.S. government seizing $2.3 M in bitcoin paid to Colonial Pipeline hackers. Another was the fact that many stop losses were triggered as we passed the $35,500 mark which were compounded by the stop losses at the $34,500 level.

HOW STOP LOSSES/LIQUIDTY POOLS CAN PUSH THE MARKET DOWN

As there are a few new traders, in this space, I will give you my view on Stop Losses and Liquidity pools. After all this forum is about learning and evolving as traders and investors. Each time a stop loss is triggered means that a BUY ORDER has become a SELL ORDER. You bought Bitcoin at $45,000 USDT. You are happy but as the market is now much lower you put a stop loss at $35,000. The stop loss is not just you closing the position if the price of an asset gets to a certain price point, it means you are selling it at that level. Meaning from a buyer you have become a seller, from a bull you have become a bear, even if fundamentally you are still a bullish at heart.

This mass selling (by bulls/buyers becoming sellers) to protect their capital, pushes the market down and compounds and activates other sell orders. Big institutions, traders, funds, whales and market makers, know that by triggering these stop losses they can force the market to move lower and create a massive tidal waves on the downtrend. They of course have shorted (sold the market) before, they have made the decision to start this selling campaign. So they can benefit from this push down, as more and more stop losses get triggered. When the volatility has slowed down, meaning there are not many stops, or the buy orders and the sell orders are in par they buy back in, pushing the market in the opposite direction. This happens all the time in all markets that offer liquidity and it heightens emotions.

For big traders that want to take advantage of market swings, it’s easier to create momentum through fear than it is through greed, and then access the liquidity pools where lots of stop losses are placed.

You can recognize these patterns when you see the candles being stuck at a level for a prolonged period of time and then as they fail to go lower they rebound back.

As mentioned in many previous posts, many big buyers bought between $30K and $35K and that’s why the seller failed many times to bring the price lower than $35K, and why a massive effort/campaign was needed to push the price lower (see massive red cable on CHART 2 “A”) to the current level of around $33K.

If you look at the 4 hour chart (Chart 1) you can see that the sellers tried to pierce through the new symmetrical triangle which they were able to do, even if only briefly.

Where from here? If we cannot rebound up from the $33k level then it is likely to go down and retest the $30K level. So be super cautious, I have added 4 strategies below to consider.

Cycles have fractals within fractals and we can see that we have formed 2 times an “M” pattern on chart 1. This is showcased by the white lines. You can see that there are not much liquidity pools below the $33K level on the VPVR indicators. On Chart 1 the 4 hourly, each time we have pierced through the blue band line in the TDI we have rebounded back (see A in chart 1), which could indicate a reversal on the higher levels.

The Stochastic is bearish. The RSI is in oversold territory.

It feels like that just as you are getting up from being beaten up, that you are getting smashed again !

This 4 year cycle is different from the previous ones. The main difference is all the Influencers and Billionaires that have an effect on the market. Another aspect is the amount of leverage trading that has become available in this last cycle, allowing individuals to create bigger market swings. Unfortunately this is how this current market is, so we will need to adapt and trade/invest in the markets with this in mind.

#1 STRATEGY: Keep holding, change nothing. You are confident the market will move up (eventually), and are happy to wear the storm. You are confident the sun will come up again and shine new life into the market.

#2 STRATEGY: Trade the Micro Movement between the channel top and channel bottom. Buy at lower levels of the channel and sell when we are close to the upper resistance and there are signs of a trend change on the downside.

#3 STRATEGY: You believe this is too hard, too stressful and just want the pain to end. You are ok, with regretting missing out on potential gains, if this means you don’t need to be in this emotional roller-coaster anymore. You are starting to believe that we have entered a bear market. So you decide to sell your holding for USDT and wait for the market to move above $42K to re-confirm the uptrend and re-enter or wait for the next 4 year cycle. Or invest your money somewhere else, as crypto is too volatile for you.

#4 STRATEGY: You believe this is too hard, too stressful but it’s also a learning process that can create wealth long term. You are ok, with reducing your losses and profit potential in exchange for having less stress and emotional swings. So you decide to sell half of your holding for USDT, when the market rebounds back up, and wait to rebuy back when it either reaches the lower support line or when the market has confirmed the uptrend again.

Either way, you have to do what is right for you.

This yo-yo is testing our emotional endurance and for many of you, this roller-coaster of at times excitement, at times despair, frustration, fear and anger may be the just enough to question why are you putting yourself through this torture. In the end the winner is normally the one that can bear the storm and stay for the long term.

I know exactly how you feel. When this big swing happen, my accounts have fluctuations of hundreds of thousands of dollars. I can tell you that looking at an account balance dropping by multiple 6 figures amounts in a night is not for the faint of heart. It has not been easy. I am getting used to it? On a certain level the shock becomes less intense, still I would rather be waking up with the opposite scenario playing out.

Even more expert traders have bad days. Not all decisions and positions always play out the way we want. We need to have multiple contingency plans and strategies to help us getting the best of the market conditions. This is why through some extent I use all the 4 strategies above. One bucket is for long term hold, one bucket is for trading the channel/range, one bucket I have moved funds to other investments (not cryptos) and the last bucket is in USDT waiting for the reconfirmation of the uptrend.

We need to adapt.

My long term picture for the crypto market is still bullish. At the moment I believe we are on no man’s land and neutral, with a bearish undertone. We might have a longer consolidation period, but long term my view has not changed. All these swing are just making me modify my strategies slightly to not only adapt, or survive but thrive.

Just to give you a different perspective… the price of Bitcoin in USDT:

2009 was 0.003 cents; 2010 was 0.5; 2011-12 was $10; 2013 was $600; 2016 was $1,000; 2017 was $19,800; 2021 reached $64,000 (currently $34,000)

If we look at these figures, we can see that this is a long term play not a short one. It’s just a question of time, as supply is the same (18 million bitcoin) but demand is increasing more and more. One day in the future most experts believe Bitcoin will reach $100K. Some even estimate a $1 Million Bitcoin.

So how do we make this bashing of the market positive? How do we make lemonade from these lemons?

One way for me specifically is to take advantage of the TAX implication on cryptos.

Every time you sell your crypto, it becomes a taxable event.

The market now is quite low, and many of us have so far have incurred a loss not a profit. So if you sold all your crypto stake and rebought 30 second later, this would become a taxable event, and your losses could be deducted from any other CAPITAL GAIN losses you have. If you have none, than these can be transferred to next year.

Please note that selling your crypto could void the 50% Capital Gain Tax Discount that comes from holding your coins for over 12 months. So see if the discount would give you better benefits then selling and rebuying. If the discount puts more funds in your wallet then selling and buying right now, then keep holding, if selling and buying now puts more funds in your wallet as it adds a capital gain loss to your taxable income, it might be something worth considering and having a chat with an accountant about.

Although this advice came from my accountant, I am not an accountant myself, so please have a chat with one that deals with cryptos or trading for more clarification.

This entire post is of course is not financial advice, it’s just what I am doing to take advantage of this lower market conditions.

Be well, be safe, and stay strong

Much Light

Paolo