Let’s Dive Into It!
Bitcoin Reversal Confirmed?
Bitcoin and Crypto Market Updates (Aug 8th)
Reversal confirmed? I think we have confirmation.
Lets take a look over the action on Friday last week because that’s the strongest evidence we have on a possible reversal.
Starting with legacy markets — specifically tech QQQ index Fridays action was aggressive, we were up in the morning and the afternoon but by close of play we reversed and ended down heavy on the day. From a weekly perspective as you can see here this gives us a nasty bearish engulfing candle and these candle formations typically signal the start of a reversal.
The crazy thing is after such an extended upside move most of these indexes could correct 10/15% and still look relatively ok and when we look at the VIX here we can see momentum is moving up so we have signs of increased volatility on the horizon.
We also have a couple of possible landmines to deal with this week:
Dumb money index still at disgustingly high levels.
In short, the RR here is horrendous.
SEC to consider Ethereum ETF Applications
The SEC’s apparent shifting their stance on Ethereum futures ETFs has caught the industry’s attention. Funds like Grayscale, Bitwise, and VanEck, are filing for such products, suggesting the SEC is now open to consideration. It was only back in May, when it urged firms to halt Ether futures ETF efforts. You never know which side of the bed the SEC will wake up on these days, but sentiments toward crypto-related ETFs have improved, partly due to BlackRock’s entry into the Bitcoin ETF race and optimism surrounding Grayscale’s lawsuit against the SEC. If we get a Bitcoin ETF does get approved… then will an Ethereum ETF follow?
HEX founder Richard Heart faces lawsuit
The SEC has filed a lawsuit accusing crypto influencer and HEX founder, Richard Heart for securities fraud, alleging he raised over $1 billion through unregistered crypto asset securities sales. Heart’s extravagant promises of wealth from assets like Hex are under scrutiny, along with his luxury lifestyle whereby $12.1 million was used for personal luxury expenses. The eccentric founder flaunted his wealth all over the internet in some comical posts and videos, which were at best distasteful. The lawsuit also targets the Hex staking program and the newly laucnhes PulseChain.
Curve Finance $70M Hack
Another day another hack… but this time it was leading DeFi protocol Curve Finance. In a significant breach, Curve Finance suffered a $70 million exploit due to a code bug that targeted several pools, resulting in the theft of a substantial amount of crypto assets. With $3 Billion in liquidity, the hack hit home to the crypto community as a reminder of the risks associated with DeFi and such positions. Some funds were recovered by ‘whitehat’ exploiters who returned some of the funds, but the true extent of the damage is still unknown
Bitfinex hacker ‘Razzlekhan’ pleads guilty to 120,000 Bitcoin hack
Notorious hacker couple which previously stole 120,000 Bitcoin from Bitfinex back in 2016 has pleaded guilty to charges of money laundering and conspiracy in connection with the massive $3.6 billion digital asset theft, marking one of the largest crypto heists in history. Heather “Razzlekhan” Morgan admitted to her involvement, revealing her awareness of her husband’s illicit activities and participation in the attempted money laundering process.
Revolut to halt US crypto services next month
Revolut is discontinuing its cryptocurrency services in the US, given the ‘complex and uncertain regulatory environment’. From September 2, US customers will be unable to execute crypto purchase orders, and from October 3, they won’t be able to buy, sell, or hold any cryptocurrencies on the platform. Revolut emphasizes that this suspension only affects US users and assures customers in other markets that crypto services remain unchanged.
Continuation, Reversal, and Range
Trading can be a thrilling journey, filled with a lot of potential for success and growth. However, it’s essential to navigate this path with knowledge and a well-defined plan. One crucial aspect that every trader, especially beginners, must grasp is the distinction between different types of trading setups, to me there are just three different kinds: continuation, reversal, and range.
Reversals — Betting Against the Trend
In a reversal setup, we identify an established trend that we expect to reverse its direction. A powerful signal for reversal can come from compression of moving averages (MA), ideally combined with higher time frame (HTF) MAs and horizontal support levels. Additionally, divergences and HTF support/resistance levels can be effective strategies for swift reversals after significant market moves. While divergences tend to result in short-term rebounds during bear markets, compressions offer more reliable signals for full reversals.
Continuation — Riding the Trend Momentum
In a continuation setup, we capitalize on an established trend that we anticipate will persist. This can manifest as immediate continuation or re-accumulation compression. The time frame plays a crucial role here, as a 15-minute compression may overlap with a 4-hour trend continuation, while a 1-hour compression aligns with daily trend continuation. Recognizing these overlaps aids in optimizing entries and execution for both continuation and reversal setups.
Range — Trading Sideways Movement
In a range setup, there is no clear trend, but we observe price moving horizontally within defined boundaries. Identifying a range can significantly enhance the execution and entry points for both continuation and reversal setups. Moreover, trades taken at the range’s extremities (long at range lows and short at range highs) are, in essence, lower time frame reversals. Ultimately, it boils down to the interplay between continuation and reversal strategies.
Understanding that price action is fractal is a vital concept for traders. As you zoom in and out on the charts, you’ll observe patterns repeating infinitely. Similarly, price action exhibits self-similar characteristics, with trends within ranges and ranges themselves as consolidation phases before a trend continuation.
Now, let’s emphasize the importance of considering the time frame you’re trading on. Your approach should align with your chosen time frame, as it influences the trade’s risk management and decision-making. For instance, a bullish outlook on a weekly chart doesn’t necessarily mean you can recklessly enter a large position and hold indefinitely. The key is to accumulate spot on dips and partially take profits during price pumps, especially when the confidence in the trade is high.
Check this example:
BTC looks ridiculously bullish on the weekly — I’m very confident it will do well next year.
Does it mean you can degen with mega size an entry on the first micro dip and hold a long leveraged position it into retirement? No!
It could go back to $20k with a wick into $15 on the weekly chart and still look good.
A good tip I would give to you is to never forget which time frame you are trading. Very often we forget to zoom in or out and we lose perspective.
Another tip that comes to mind is to keep in mind that the higher the confidence in a setup, the wider the stop. Why? It’s just because your EV (expected value) will come from the winrate more than the R:R. If your EV is high and you have conviction you can increase risk and put on more size, that’s okay, but keep your SL wide still.
One common and crushing mistake made by inexperienced traders is increasing their position size with a tight stop on high-conviction trades. When the trade gets stopped out due to a small price fluctuation, but because conviction is high they have no hesitation instantly buying back higher after getting stopped out… Why did you have a stop placed there if you didn’t consider the idea invalidated?
And also very often the more conviction, the more your ego refuses to miss the trade, making you instantly FOMO back. Imagine you are super confident an asset will pump and still manage to miss the pump? “Unacceptable!” is what your ego is gonna tell you. And that’s how, you end up getting played multiple times only to see the setup you analysed perfectly play out but without you in it.
In summary, mastering trading setups requires discipline, a well-defined plan, and respect the time frame intended for it. Continuation, reversal, and range setups offer different opportunities to navigate the markets with confidence. Embrace the dynamic nature of price action, and never underestimate the importance of emotional control and risk management. Remember, it’s not just about the destination; it’s about the lessons learned and the growth experienced along the way. Happy trading!