I use Bitcoin the same way I use the S&P 500 (SPX) for stocks and the Dollar Index for Forex, as an indicator of market conditions. I don’t trade these assets, states Zaheer Anwari of SublimeTrading.io.
When these assets are trending, I scan and analyze for the strongest to add to my portfolio. When they are in consolidation, I tend to stand aside and protect my profit and capital.
Bitcoin has dropped by 10% in the last month, but the bigger picture shows very little difference in where the price is in relation to major levels of support and resistance.
Below Is the Weekly Timeframe
We are now in the fifth month of the price of Bitcoin:
- Trading below the weekly 200 simple moving average (200sma), black line in the image above but
- Finding support at the $2000 round number
What Does This Mean?
Price is stuck inside an area of consolidation. Short-term traders will be trying to make money by picking off swings in the market. This can often be a frustrating approach. Winners will be canceled out by losers, so it ends up being a lot of effort for little to no gains.
If money is being made, it is often not worth the screen time and effort that goes into it, but that is up to the individual. Some genuinely enjoy the battle, while others are pinning their hopes on instant riches.
Either way, it is always worth remembering that staying true to the long-term principles of sound investing is where serious money is made. What differs between, say, the stock market and the crypto market will be:
- How much you risk per asset
- How long you hold a position for
- How you manage your exit
With the crypto market being newer and more volatile, you will risk less and hold for a shorter period of time compared to stocks. However, given the extra volatility in cryptos, the returns do not require one to take unnecessary risks.
This is a concept that crypto traders often overlook and why honing your investing skills in a slower market such as stocks will do you better in the long run.
What Is My Stance on Bitcoin and the Crypto Market?
Simply standing aside for now. I have a crypto portfolio that is made up of Ethereum as well as a number of IDOs. The risk involved is a fraction of my overall wealth. I will continue to add to this portfolio once the market has displayed enough of a recovery. I am a bigger believer in the expression, the longer the consolidation, the bigger the breakout.
At some point, the price of Bitcoin will break out, move towards, and hit $100,000, taking other coins and projects with it. When that happens remains in the hands of the market forces. Until then, you can short-term trade the risky swings in the price of Bitcoin or stand aside and focus on markets that are already in trend. For example, I am long on the USDJPY since earlier this year, with the price moving almost 30% since March.
Diversification is an essential skill for consistent returns. In comparison, an unhealthy obsession with a single asset or asset class is detrimental to your performance, a fact people often find hard to accept until it is too late.