This has been a mixed week, with some small gains and losses on Bitcoin (BTC) longs and small earnings on alt trades which I will discuss in the coming weeks. I would like to take this opportunity to explain a few things about my trading style and approach in general, as it can be confusing for many.
First, I do not short Bitcoin. This is not because I have no desire to look for short positions, but because I am American and cannot legally trade on leverage exchanges that offer Bitcoin shorts. The only exchange where I can legally short is Kraken, which is notorious for huge wicks on candles that don’t exist on other exchanges. I will not trade anywhere that my risk management strategy cannot be properly executed – so long wicks that stop out traders who would otherwise be fine elsewhere are not acceptable for me.
That said, I only look for long entries, which is not an ideal situation, as it forces me to trade against the trend when I want to enter a position. I am comfortable with this because I have a proven and well-defined trading system. It allows me to take many small losses, compensated for by a couple of large gains a year.
This works for me but is unlikely to work for another trader who does not fully understand my situation and system. To that end, nobody should copy my trades, or anyone else’s. The responsibility to develop and enact a system is yours, and your system will be a result of your own financial situation, timeline, and expectations.
It is also important to note that I only trade with a small percentage of my overall portfolio. I only trade 15% of the funds allocated to my crypto portfolio and my total crypto allocation represents only 10% of my entire investment portfolio. As I often say, I plan my losses, expecting some of the trades I make to go against me. As such, I am comfortable losing my entire trading portfolio, and it would not have any effect on my life. That is my system.
I would also like to drop a quick note about longing and shorting cryptocurrencies. In my opinion, longing is potentially far more profitable and less risky than going short on Bitcoin, or any other asset. I recently tweeted about this and was a bit shocked at the lack of understanding of this concept amongst traders that are actively shorting with leverage.
At the core, a zero leverage short’s maximum earning potential is 100% if the asset goes to 0. You cannot do better than doubling your money. The theoretical upside of a long position is infinite. That is why a short from the Bitcoin top at $20,000 all of the way to the low of $3,200 was less profitable than a simple long from $3,200 back to $6,400. Beginners should not short, they should buy dips in an upward trending market.
Update on the Bitcoin position
As discussed in the last journal entry, I opened a Bitcoin position at $8,375. The price rose immediately, so as I usually do, I moved my stop loss up. I ended up stopping out at my entry price and broke even.
I also took another position as price continued down, at $8,010. Price retraced to the 78.6% Fibonacci level, a very deep retracement relative to previous corrections. This seemed like a reasonable place for a bounce. There were also clear bullish divergences on all time frames from 6 hours down, which ultimately failed.
BTC USD 4 hour chart. Source: TradingView
The most compelling reason for a long position in this area was the potential “bullish breaker” shown in pink. This was an area of supply that was blown through in a single candle. These zones are often retested as support – known as a bullish breaker when they are successful. I stopped out when the price failed to hold this level, at $7,900 for a position loss of roughly 1.4%.
BTC USD 6 hour chart. Source: TradingView
I took another Bitcoin position at $7,420 when the price arrived at the next zone that I had outlined. It did so in spectacular fashion, effectively going from zone to zone in a single 4-hour candle. I immediately moved my stop loss up to $7,500 when the price crossed $7,600. I soon stopped out with a small profit of 1%.
BTC USD 4 hour chart. Source: TradingView
I am presently long Bitcoin once again from $6,900. The Relative Strength Index (RSI) on the 4-hour chart is at historic lows, touching 6.02 today before rising slightly. This is the most oversold that Bitcoin has been this entire year as well, so I view it as a very likely place for at least a relief bounce.
BTC USD 4 hour RSI. Source: TradingView
The daily RSI has also become oversold. That does not mean that price will bounce now, but it does mean that eventually, RSI should travel back to overbought, taking the price with it.
BTC USD daily RSI. Source: TradingView
I have already closed half of my long position at $7,350, the first key resistance that needs to flip for the potential reversal to continue. I will let the rest ride for now.
BTC USD 6 hour chart. Source: TradingView
Additional trades:
I remain in my position on Harmony (ONE). I also still hold positions in Dogecoin (DOGE) and Holo (HOT), which I will update when the price action details such an update as relevant. I have recently taken a new position in REN (REN), based simply on a confluence of horizontal and ascending support and a bullish divergence on the 4-hour chart. I will update this as it progresses.
REN BTC 4 hour chart. Source: TradingView
REN BTC daily chart. Source: TradingView
The views and opinions expressed here are solely those of the (@scottmelker) and do not necessarily reflect the views of CryptoX. Every investment and trading move involves risk. You should conduct your own research when making a decision.
