Trading Lesson: Decrypting Cryptic Cryptos: Many Questions, Few Answers

03/23/2018 1:03 pm EST


Jake Bernstein

Publisher, The Jake Bernstein Online Weekly Capital Markets Report and Analysis

Knowing all you know and don’t know about cryptocurrencies, you have decided that you want to trade them. What are your choices? Will you day trade cryptos? If so, what exactly is a day trade in these 24-hour global markets, asks veteran trader Jake Bernstein on Friday.

Is it your plan to stay awake all day and all night in order to make your day trades?

Perhaps you decided to trade only when you have time to watch the market. Is that a good approach? Absolutely not!

Let’s assume that you have decided to trade only during day session hours from 8 am to 2 pm. If so you still have some issues to resolve. They are as follows:

  • Do you want to trade using technical indicators? If so, then you need to decide which ones work. How would you know that? Would you ask someone? Will you believe what they tell you? Will you have track records and historical performance statistics? Will you stick with the tried-and-true” standard indicators such as chart formations and trendlines? Do they really work? As you can see, there many questions but few cogent answers.
  • And for many of these issues we do not as yet have sufficient data history. Why? Simply because the cryptocurrencies have not been around long enough to provide an adequate historical database for testing. It’s truly the Wild West of technical analysis.
  • Will you be a fundamental trader? If so what are the fundamentals? What fundamentals correlate closely with the cryptocurrencies? Do some cryptocurrencies respond to certain fundamentals while others respond other fundamentals? Do we have answers?
  • Perhaps you will make your decisions based on the premise of the blockchain. If so, do you understand the blockchain? If you do understand the blockchain, how does it relate to the price trends?
  • Perhaps you’re a seasonal trader. If so what are the seasonal tendencies in cryptocurrencies? Again, we don’t know the answers because cryptos have not been around long enough to give us the historical data we need in order to find and evaluate seasonality.
  • Perhaps you decided to be an investor. If so what is the basis of your investment strategy? You have so many choices!  
  • Will you go to the internet and do a search on cryptocurrencies? If so you’ll get hundreds and thousands of opinions, if not more. Which ones will you believe?
  • Would you believe the forecast that claims bitcoin (BTCUSD) will be at $50,000 by the end of this year? Or will you believe the forecaster who says that within two years, we will hit $2 million? Maybe you believe the ones that claim bitcoin is going back to zero and you avoid the markets entirely.

As you can see there many more questions than answers.

In the next installment I will show you some of the technical work I’ve done using six-hour data for the cryptos. That perhaps will give you some direction for research.

Remember the best tool you can have as a trader or as an investor is information. While there is considerable information available today, most of it is based on opinion as opposed to facts. Exercise caution!

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