Bitcoin and the Trader

Personally, I wouldn’t trade Bitcoin if you paid me. My first rule of trading is the ‘preservation of my capital’. I am willing to risk provided I can make a reasonable assessment of the risk, and I am happy I can psychologically handle the volatility.  Neither is possible, for me, with Bitcoin.

Firstly, it has all of Minsky’s elements for a bubble (For Minsky’s five steps see ‘5 Steps to a Bubble.’). And secondly, the biggest risk will take place when the bubble bursts, few will take the other side.  This means, of course, you are likely to get locked in without any avenue for to exit. Finally, a burst bubble tends to return to its starting point. If we view that in this leg up, the starting point was its breakout, you’re talking about the 1,200 zone.

Long from 10,000 and locked into a price drop to 1,200? Too rich for my blood!

Turning to how I’d have viewed the ‘Inverted Head & Shoulders’ in last week’s post……

Figure 1 shows a daily Bitcoin chart from June 2010.  We see:

  1. Three impulsive legs up that had momentum above the 4×1.
  2. Each break did not see a change in trend pattern in the 18-day swing. The break of the 4×1 was the only warning you would have had of the shift in sentiment.
  3. In April 2017, we see the current swing. Notice that this time, prices hugged 1×1 (green fan line)

Figure 2 zooms on the current swing with prices ending on Jan 15. What I was seeing was a potential 5-period swing Normal Change in Trend. Acceptance below 10,875.71 would confirm the move down.

Figure 3 shows current prices.

Acceptance above 13.327.37 calls for a retest of the 19,800 zone; acceptance below 10,875.10 calls for a move to the 5,500.00 to 8,000 levels.

Good luck if you are engaged in this asset class. Don’t be left holding the bag when the bubble bursts!

Figure 1 Bitcoin 2010
Figure 2 Bitcoin to 2018-01-15
Figure 3 Bitcoin Current

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