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Bitcoin Opinion: The Lessons Of A Bearish Market
With my last couple of articles, I’ve taken the discussion away from price and volume, as I wanted to focus on the underlying bitcoin infrastructure and governance model, as well as on the technology developments that will push adoption. I believe it was worth it, as we…
With my last couple of articles, I’ve taken the discussion away from price and volume, as I wanted to focus on the underlying bitcoin infrastructure and governance model, as well as on the technology developments that will push adoption. I believe it was worth it, as we really need to understand how this new distributed infrastructure and organizational models can be applied to most businesses today. More however, if we do not make an effort to learn the subtle difference between decentralizing infrastructure vs decentralizing governance, all this cryptocurrency madness might end up blowing all over our faces.
After all, what’s the point of having a decentralized infrastructure if power remains with the few and not the many?
It’s up to all of us to pressure governments, regulators, news media, and crypto-influencers to promote better outcomes for a decentralized world, by simply not blocking people from accessing this wonderful medium of storing value or by spreading FUD amongst the crypto-community. Aren’t we all on the same boat, after all?
–this article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. Never forget: with great power, comes great responsibility. Being your own bank means you’re always responsible for your own money—
The Latest Bitcoin Price-Action
The current price of Bitcoin is sitting at a comfortable USD 6300 level, meaning although we saw a huge sell off, most likely due to pure market manipulation, Bitcoin’s price is still above the USD 6000 support level and below the USD 8400 resistance. The trigger to the sell off that took place during the beginning of September was probably related to a wallet which remained inactive for 4 years and then decided to dump some btc, according to some sources. Not before, of course, a huge short against bitcoin appearing on our good ol’ friend Bitfinex. This leads me to believe the flash-crash was due to a single player/entity selling about 100k Bitcoin to make a quick buck.
If you look at the 1 year evolution of Bitcoin’s price, from September 2020 to 2020, what we notice is that it grew 1.5x. Now, does history predict future prices? Clearly not; but it can tell us a really interesting story. For one, will this bear market have a long-term influence on the price of bitcoin? Is the cryptocurrency market capable of recovering?
- buy when there’s fear,
- sell when there’s hype;
I see the past 6 months as an amazing opportunity to snatch some bitcoin (or any other cryptocurrency for that matter), at a really nice price. Would you sell-off your investment at a loss if you knew it could be 1.5x times higher next year?
Bitcoin Price Volatility
The reason why so many people invest in bitcoin is due to its volatility. Without it, there would be a lower chance for epic gains. Whoever is patient during extensive bear markets, will eventually take home a butt load of profits. This is what price history tells us: what eventually comes up must come down; yet, the opposite also happens.
Looking at the table above we can see many great opportunities to enter the market. I really don’t know that many assets that can crash more than 80% and then, not only recover, but grow 10x; just 3 years later. It’s insane how speculative the bitcoin market is, however it is that same speculative nature that brings more people in.
You might still be worried though, how can anyone be sure what the future holds? What if this is the only time ever the market won’t recover?
What if I lost all my money?
My advice is to stop going in circles. Literally.
The point is: ride the waves, don’t fight them.
Unless you have the money to move mountains (on this specific case the mountain being the price), it’s futile to worry too much what about you can do. The way I see it, this is a very simple binary game. You either win or lose by selling or buying. The options are quite simple and the end result depends on a good strategy, hard work, timing and patience.
Let’s get down to business and discuss my view on how to tackle bear markets.
Find a reliable strategy
There are plenty to chose from but your goal is to chose one and stick to it. It’s easier said than done, especially if you like to glue your face to candle charts on a daily basis, however, do not deviate from a path before you’re sure there is an abyss.
Any strategy depends on its players. Think if you’re into researching projects, teams, businesses and make long-term bets, or care more about price-action and short-term trading. Or both. I really can’t say, it depends greatly on your personal interests.
Strategies take time to show results, like everything worth in life. Most successful traders understand this as a golden rule, as well as, no strategy can overcome all obstacles. That’s just the way it is.
Some bottlenecks cannot be avoided and you will make bad choices.
pro-tip: enjoy falling. It’s part of the learning experience.
After all, we’re just human. Even bots make mistakes – as they are crafted by us and code isn’t free of bugs.
Learning from those experiences is what can make you a better trader or investor. For example, if you had bought cryptocurrency on the 6 months prior to January 2020, you could be making a hefty profit by converting your cryptocurrency into fiat.
Anyone with a bit of sense in their heads would at least convert enough to cover for the initial investment. That way, even if the price went to zero, you would have your butts covered.
What if you’re stuck at a potential loss because you came in too late?
My strategy is simple: buy when prices are low, sell when prices are high, hence there are always two options:
(a) sell the assets at a much lower profit or at a loss and reinvest at a later stage,
(b) keep the assets, maybe buy more to average losses and wait for another bull-run.
Whatever decision you think is the right one, it is the right one.
The likelihood we look at money, risks and rewards the same way is quite thin, meaning: there are no right or wrong answers.
What matters to me is the ultimate goal: to make money; and the best way to do achieve that is to stick to a strategy and keep going at it – with a certain degree of critical thinking, as you don’t want to keep losing money in the long-term.
However, in order to achieve mastery of any kind, one needs to work hard at it.
Put in the hours
Time is a funny thing. Until a couple of years ago we thought time was a constant, this is, it was felt exactly the same way no matter where you were in the universe.
Of course we now know, thanks to Einstein’s theory of general relativity, time is actually relative. This is, the faster you go, the slower time will pass (relatively). If you hopped onto a shuttle and went to another galaxy at near the speed of light, it meant you would experience time differently from someone down in Earth.
Why is time important? Well, because I believe knowledge to be connected to your perception of time. It’s much easier to make good decisions when you have sufficient know-how and understanding to expand your event horizon; in this very specific case, the event horizon being the limit of our own knowledge.
What I mean is the more knowledge one possesses, the easier it is to see past certain barriers. It can be news, experts’ opinions, price movements or anything that could be a potential trigger for bad decisions.
To gain knowledge, however, there are no clever ways to circumvent the harsh reality of things.
You need to dig-deep and find ways to learn as much as possible, about each and every field that dictates the price of cryptocurrency.
Some I tend to follow are down below. They’re purely based on my opinion and preferences, nothing else.
- Technology: it dictates user adoption. Understanding how bitcoin and other cryptocurrencies work under the hood is crucial. You can have the most amazing tech, but without proper UX/UI and nicely thought incentives and rewards, user adoption won’t likely grow as expected.
- Psychology: it dictates market behaviour. If you want a neat tool to understand when it’s a perfect time to sell, check google trends. People lookup bitcoin the most when prices are at its highest. I would argue it’s within our nature to buy when prices are high due to excessive FOMO and hype. That’s why it is so important to be a contrarian when it comes to making decisions.
- Traditional Markets: they dictate investors’ strategy. Consider the following: if the shares-asset class is doing fine, how do you think the price of long-term assets, like gold or silver, will behave? Interest rates near zero-levels make investors bullish on spending money on assets with huge returns, as making riskier gambles is cheaper. Don’t people say bitcoin is the new digital gold? What do you think it will happen when traditional markets enter a bearish cycle? In my eyes, cryptocurrency could be the answer.4. Reality:it dictates market values. If you didn’t know, most technological problems are also philosophical ones; if you think of scalability, the hottest subject around cryptocurrency adoption, it becomes obvious the discussion is not whether you can scale bitcoin (or other cryptocurrencies), but how you’ll do it. Will we give up decentralization for efficiency? If so, where would that lead price-action? What matters at the end: core values or the reality of things?
These are my four pillars of investing. Remember, critical thinking is key to becoming aware of how knowledge can be applied in different situations. To become a winner you certainly don’t need all the know-how in the world; there are plenty of examples that show success is not due solely to our big brains. You can’t master investing without mastering a bunch of other fields first. That’s why so many successful people who don’t possess formal education have made it.
Learn as much as possible, fail as soon as you can and repeat the cycle. There are no exceptions.
Work hard and always share knowledge with others. Remember, networks only grow if its community grows too.
Time spent on the market
There’s a really nice article explaining why timing is so critical, but the gist of it is that if you miss, for example, the best 10 days of trading (during peaks/lows), you could potentially lose more than 50% of all potential profits. This is, missing the 10 best days can lower your expected returns in halve.
Instead of worrying, take these bearish cycles as a lesson and study some techniques to assist you in making more accurate predictions in the future.
Nobody can time the market perfectly, but there are a few tricks to minimize your risk.
TA is definitely a great tool to better understanding price movements and how you can leverage them for your own gains.
I’m definitely not an expert when it comes to TA, so I would advise you to follow some people who do trading for a living. Two of my favorite are Daniel Jeffries and Alessio Rastani. They have completely different approaches, but that is what you should be looking for: people with different ideas, visions and ways of investing/trading.
Pro-tip: You can learn a great deal by researching on the old masters of trading and their long-term techniques.
The underlying logic always remains the same:
- Buy low / Sell high,
- Be a contrarian, but respect trends.
Now, accomplishing this feature isn’t easy; to make it simpler, I will share my knowledge and way of thinking, what I personally care about and the correct time-frame for investing.
If it works for you, build upon it. Knowledge clearly has network gains, as the more you share, the more people can build upon your findings, making the entire network better.
Be patient. Rome wasn’t built in a day.
How many stories have you read or heard of people complaining they either lost everything or sold too soon?
That’s how hard it is. Especially when you can now easily trade with leverage.
Don’t forget, it’s you vs the market.
At the end of the day what matters is if the call you made translated into profits. If you’re looking for lambos and moons, I’m sure the likelihood of losing your investment is quite high. This is, usually people who expect quick gains do not have a key ingredient for success: patience. That’s why bearish cycles are so important, as they clean the market of both disbelievers and bad projects.
If you really want to succeed in this market, you need to go all-in. No, do not put all your hard-earned cash into bitcoin, but do dive-deep into cryptocurrency by learning about its technology, business ventures, market behavior, TA, or any other field you might consider relevant. You’ll be adding value to the market not only because you’ll be making more informed decisions, but you can also share knowledge with others.
Markets are cyclical. If you lost money now you can always recover it on the next bull-run, which in my not-expert opinion, might be coming soon.
One of the obvious reasons are ETFs. If, in one hand, bitcoin futures gave institutional investors a chance to bet heavily against bitcoin and make double-wins, ETFs will have the exact opposite effect.
Another, as they say, is history. It surely does not repeat itself; nonetheless, it gift us with price-action certainty. Like October and November being kind months for Bitcoin’s price.
Set reasonable targets in your head and don’t get too greedy. Be patient and learn as many different strategies as possible.
At the end, any market is just a game of winners and losers.
Want to be on the winning side?
Sell high, buy low.
Don’t forget, nothing is certain; chaos is everywhere and the arrow of time always moves in the same direction. All you read are my personal opinions which are not financial advisement. Be responsible.
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Last modified: January 24, 2020 11:00 PM UTC
With an academic background in economics and professional experience in tech, I believe cryptocurrencies to be the fuel that will drive the 21st century economies. I have founded Bityond, a recruitment & talent management skills-matching platform between candidates and jobs. Tweet me @Febrocas
Currency market’s bet against the US dollar is getting riskier by the day
Neal Kimberley warns that the currency market’s aggregate short position on the US dollar is looking vulnerable, with the euro zone performing worse than expected and the latest US data reflecting economic health
Trading with the Bearish Engulfing Candle
Bearish Engulfing Pattern: Main Talking Points
The bearish engulfing candle is one of the forex market’s most clear-cut price action signals. Many traders will use this forex candlestick pattern to identify price reversals and continuations to support their trading strategies .
This article will cover:
- What is the bearish engulfing candle?
- How to identify and interpret the bearish engulfing candle in forex trading
- How to trade forex with the bearish engulfing pattern
This article refers to candlesticks in great detail. Ensure you know h ow to r ead a c andlestick c hart
What is a Bearish Engulfing Pattern?
A bearish engulfing pattern produces the strongest signal when it appears at the end of an uptrend. The pattern is created by interpreting the data of two completed candles:
The first candle will depict the end of the established trend strength. It should be noted the size of this primary/bullish candle can vary but it is crucial that the body of this candle gets completely ‘engulfed’ by the candle that follows. Dojis and other small bullish candles provide the strongest signal as they can reflect market indecision in the current trend.
The second candle in the pattern is the reversal signal. This candle is comprised of a long red candle creating fresh downward price momentum. This bearish candle should open above the close of the previous candle and close well below the low of the previous candle. This strong downward movement reflects sellers overtaking buying strength and often precedes a continued fall in price. The further this secondary/ bearish candle declines, the stronger the signal becomes.
Know the Difference between a Bearish Engulfing Pattern and a Bullish Engulfing Pattern
Engulfing patterns can be bullish and bearish. The bullish engulfing pattern is essentially the opposite of the bearish engulfing pattern discussed above. Instead of appearing in an uptrend, it appears at the bottom of a downtrend and presents traders with a signal to go long. It is characterized by a red candle being engulfed by a larger green candle.
Bullish Engulfing Pattern
Below is a summary of the main differences between the bullish and bearish engulfing patterns. Traders should keep these in mind in order to avoid false signals.
|Bullish Engulfing||Green candle engulfs previous (smaller) red candle||Appears at the bottom of a downtrend||Bullish signal (Bullish reversal)|
|Bearish Engulfing||Red candle engulfs previous (smaller) green candle||Appears at the top of an uptrend||Bearish signal (Bearish reversal)|
Find out more by reading our comprehensive guide on engulfing candlesticks .
Using a Bearish Engulfing Candle in Trading
Traders should always be on the lookout for trade confirmation by utilizing indicators , key levels of support and resistance , or any other technique that will support or invalidate a trade. Presented below are two approaches that traders can use to strengthen the bearish bias suggested by the bearish engulfing pattern.
Trading the Bearish Engulfing Candle Using Indicators
The example below highlights the bearish engulfing pattern appearing at the top of the uptrend on the EUR/USD daily chart. While it is not advisable to trade against the trend, in reality, reversals do occur, which is why all traders should be able to spot when this is likely to appear.
The chart shows the Euro appreciating and topping out at where the bearish engulfing pattern appears. Additionally, the Relative Strength Indicator (circled in black) validates the bearish bias with an ‘overbought’ signal.
Taking a closer look at the chart, entry levels, stops, and targets can be identified.
Entry : Traders can wait for a close lower than the low of the bearish candle or simply place working orders far below the low.
Stop loss : A stop can be placed above the recent swing high as this would invalidate the move and provides a sensible risk to reward ratio .
Target/ Take profit : Since bearish engulfing candles can indicate the beginning of a prolonged downtrend, it is helpful to consider an initial take profit level while remaining open to further downward movement. Adjust stops accordingly or consider using a trailing stop.
Trading the Bearish Engulfing Candle Using Support & Resistance
The chart below shows a bearish engulfing candle pattern appearing at resistance on the US Dollar Index (DXY). The level of support is important here because it shows that movements higher have been rejected previously. When the bearing engulfing pattern appears at resistance, it provides greater conviction towards a bearish bias.
Entry : Considering the bearish engulfing is backed up by the level of resistance, traders may consider entering the trade at the open of the following candle.
Stop : The stop can be placed above the bearish engulfing candle and the level of resistance. A move above this would invalidate the move.
Target/Take profit : Targets can be set at a recent level of support. For the same reason as the above example, traders may consider a second target level – or implement a trailing stop – as the bearish engulfing candle may signal the start of a sustained downtrend.
Further reading on Candlestick Patterns
- For more information on trading the bullish and bearish engulfing patters, read our Engulfing Candle Patterns article.
- Traders should look for trade confirmation by utilizing indicators and levels of support and resistance , in order to make higher probability entries when trading the bearish engulfing pattern.
- The bearish engulfing is just one of many forex candlesticks . Find out what the Top 10 Candlestick Patterns are and how to trade them.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
The US Dollar’s climb invalidates “money printer meme” and damages Bitcoin narrative
So-called “Crypto Twitter” has been enthralled by a widely circulated “money printer go brrr” meme that takes aim at the government’s incessant money printing, with many crypto enthusiasts pointing to the Fed’s current monetary policies as the reason why Bitcoin is so important.
Despite these massive monetary injections that are – at least partially – fueled by money printing that inflates the US Dollar’s supply, the currency has been able to see some notable strength in recent times.
This has led some prominent commentators to note that the narrative regarding this money printing being bullish for Bitcoin and bearish for the US Dollar is being invalidated.
Although the short-term impacts of this loose monetary policy may not be fazing economists, investors, and even forex traders, the long-term case for the importance of a decentralized digital currency like Bitcoin is still incredibly strong.
U.S. government prints trillions to fund economic stimulus, but USD remains strong
The recent economic damage created by the Coronavirus has led governments around the world, but especially the U.S. government, to take unprecedented actions to curb the economic impacts of this pandemic.
“The Money Printer Meme”
These actions have required trillions of dollars’ worth of funding, leading to the resurgence in anti- fiat sentiment from those critical about the economic impacts of the massive inflation caused by creating currency out of thin air.
In spite of this, it doesn’t appear that there have been any short-term implications of this economic activity, with one popular Bitcoin commentator noting that USD’s value has actually grown.
“They printed $6 trillion out of thin air and the value of the USD went… UP. Let that sink in. How’s that narrative working out for you?”
Bitcoin’s long-term position as a fiat alternative is still strong despite narrative damage
Although those holding and interacting with US Dollars may not be seeing any immediate implications of the Federal Reserve’s massive spending, it still highlights the need for a decentralized currency like Bitcoin – even if it damages the Bitcoin narrative in the short-term.
As previously reported by CryptoSlate, the Fed Chairman recently admitted in the interview that the central bank essentially has unlimited spending power, which was a harrowing statement that elucidated the inherent lack of value that unbacked fiat currencies have.
Eventually, it is highly probable that massive inflation of fiat currencies will eventually strike a major blow to the traditional financial system as we know at, with scarce cryptocurrencies like Bitcoin providing viable alternatives to fiat currencies.
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Why is everyone so bearish?
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When I read many of the comments to columns I see posted, the pervasive bearishness is quite striking, whether it is negative about the economy, the market, or just simply overall negative. This applies whether the columns themselves are positive or negative, or whether the site is overall positively or negatively bent.
In my experience, it seems to be that the public (or at least those within the public that post comments) leans bearish much of the time. The only time you see them being bullish is about metals, and the only reason they are bullish metals, is because they think everything else around them is bearish and negative. Why is that?
As one who has always attempted to view markets from an unbiased perspective to determine what the next bigger move will be, it almost seems as though I am fighting an uphill battle whenever I determine we should be looking up in the stock market or down in the metals market. Whenever I write a bearish market column, I see a large number of posts in support of my perspective. But when I write a bullish market column, I am derided and demeaned by posts of how I don’t know what I am talking about since the market is clearly going to crash.
Let’s face it folks; bearishness sells. Bearishness seems to be what the public wants to see in print. Have you ever wondered why?
Focusing on the negative
Is there an old-timer to whom you have spoken lately who has not mentioned how things were “better back in the day?”
If one were to seriously consider history, on just about every metric, the world is in far better shape than almost any time in history. In fact, one of my favorite rides at Walt Disney World in Florida is the Carousel of Progress, and it was rumored to be Walt’s favorite as well. That ride presents how we have technologically progressed through the 20th century, and one cannot deny those significant progressions from a period of time before electricity.
While we are very concerned about war and terrorism today, are we any worse than World War I, World War II, our own Civil War, etc.? We gripe about wages, poverty, and the value of the dollar, but poverty is at historic lows, and the poor have things today that rich people couldn’t dream about 100 years ago. As much as we complain about our current health-care system, do you recognize the leaps and bounds we’ve taken in the past 100 years in medicine/health/science? Are we now living longer or shorter lives than we were 100 years ago?
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From my perspective, we have clearly been on a long term path of progression. While we certainly have experienced periods of regressions, overall, we seem to have historically been on a positive path. Yet, most seem to only focus upon the negative regressions. Why?
Roy F. Baumeister, a professor of social psychology at Florida State University, captured the idea in the title of a journal article he co-authored in 2001, “Bad Is Stronger Than Good,” which appeared in The Review of General Psychology.
In that article, he explained that those who are “more attuned to bad things would have been more likely to survive threats and, consequently, would have increased the probability of passing along their genes . Survival requires urgent attention to possible bad outcomes but less urgent with regard to good ones.”
This seems to cause man to become hyper-focused on the negative, which is driven by his innate desire to survive. Furthermore, when we consider that fear is the strongest emotion generated by our brain stem, we can develop a negativity loop that drives us to continually focus upon the negative by our strongest natural tendencies.
Now, we have a better understanding as to why fear or bearishness sells. Our innate tendencies seem to drive us in that direction, despite all the empirical data to the contrary. While our innate tendencies seem to have been pre-programmed within our brain stems to assist man to survive in a life and death struggle, I am not sure such hyper-focused tendencies help us in all aspects of our current lives in which we clearly allow them to reign.
The herd mentality
Man also has a natural tendency for herding. And just as in our financial markets, such tendencies for focusing upon the negative, as well as herding, do not always serve an investor in a manner which is positive for their investment account. Rather, there are times when an investor has to fight their natural tendencies to avoid adverse effects upon their investment account. I have spoken about this general perspective a bit more in this recent column.
It is for this reason that we recognize that contrarian thinking is much preferred to “group think” when dealing with financial markets.
Consider how many of you have maintained a bearish bias of the stock market since 2009? We have heard all the same reasons that feed our natural bearish tendencies. But one has to question if the fundamentals, which has many currently bearish, will foretell a long-term top in our market so that the majority of the market may prepare for the “crash.” Well, has the market ever telegraphed such a market decline?
Think about it. Is it more fashionable to be bearish today than bullish? The Fed is taking away easy money. The economy is supposedly not doing so well. GDP has supposedly been anemic. Commodities have been in free fall. Real unemployment is still quite high. Government debt is increasing at an alarming rate. Insurance costs are rising by double-digit percentages annually. High-yield debt has been crashing. Is there any good news out there, or do we have a solid wall of worry being built?
Be a contrarian
I would like to remind you of what was said by Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF, regarding those engaged in “fundamental” analysis for predictive purposes:
“The historical data say that they cannot succeed; financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?”
So, do we sound like we have struck the top of our long-term bull market? Or are our natural tendencies simply driving us on the “bear bus?” While we may certainly still see another pullback down to the 1800s in the stock market, does the news flow suggest that we are topping in a long-term bull market, or does the news flow still seem too bearish to be at a major top?
I want to take this opportunity to wish you and your families a very happy and healthy new year. May the new year bring you and your families health, prosperity and growth, and may we continually strive together to uncover the truths within our financial markets so we can maintain on the correct side of the trend.
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