Market Meditations | April 23, 2021
Blood on the streets today and many questions being asked.
Dear Premium Meditators
Blood on the streets today and many questions being asked:
What’s happening with Bitcoin?
What does it mean for Ethereum?
Can we find solace in altcoins such as Solana?
Let’s answer them one by one. Bringing in our good friends technical and fundamental analysis.
Read, enjoy and don’t forget premium members get access to our private discord channel.
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What’s happening with Bitcoin, what does it mean for Ethereum and can we find solace in altcoins such as Solana?
Bitcoin is in a tricky spot after some ugly price action.
$60,000 – Key Psychological level
$51,309 / $50,411 – Key Structural Level
$45,000 – Key Support / Structural Level
Deviations above $60,000 will have trapped late longers, it will be difficult to break this level in the short term.
We’ve lost several key structural levels on the road down to $48,000. The market structure has undoubtedly shifted. For context, this is the first time the price has reached the 100 Day MA in 2021.
Assuming $50,000 holds, a period of sideways price action is probably ranging up to and testing $60,000.
FUNDAMENTALS. Early doors Friday, we saw Bitcoin prices below $50,000. On the fundamentals, the reasons for the dip are contested with fingers being pointed. According to The Block, the price drop follows news in the U.S. hours that President Joe Biden was said to propose increasing tax for the wealthy on capital-gains by as much as 10%.
Further, data from Bybt.com shows nearly $500 million worth of bitcoin long positions have been liquidated over the past one hour due to the price slump. Accompanied by $1.6 billion in crypto futures positions.
Despite Bitcoin’s shift, ETH is holding quite nicely.
$2000 – Key Psychological / Structural / Support Level
After bitcoin finds a steady floor, Ethereum having shown strength is primed to extend to $3000.
This is invalidated below $2000.
FUNDAMENTALS. Ether had achieved a record $2,644 intraday on Thursday. That compares with Bitcoin, which has been on a downward trend since April 14. Yesterday’s highs can likely be attributed to a coming upgrade that is expected to reduce the supply of Ether, which could help boost the price. Known as EIP 1559, the change solves a current problem:
Ethereum users can only estimate how much Ether will be needed for transactions to be processed, a guessing game that has spawned sites such as ETH Gas Station to help people know how much to pay. EIP 1559, which will become part of an upgrade in July or August, will embed an average price into the network itself making the guessing game obsolete.
$36 – Key Structural Level
$30 – Key Support
Solana has shown great strength, it’s a higher risk play relative to ethereum with an upside target of $48.
This idea is invalidated at $30.
FUNDAMENTALS. Solana has proven to be relatively resilient against market dips. Solana is a fast, secure, scalable crypto blockchain that supports smart contracts and decentralized applications. Unlike Ethereum, it has always embraced the proof-of-stake and proof-of-history consensus. This makes it relatively faster and substantially cheaper than Ethereum’s network. Which is not to say that one exceeds at the expense of the other. As @adamscochran detailed in a recent twitter thread, the possible outcomes are not quite so binary.
IN SUMMARY. Different technologies excel at different things. Decentralisation is a spectrum, blockchains actually have a web of trade-offs they can choose to make on multiple spectrums. Where Ethereum focuses on maximising decentralization, trustlessness and accessibility of the state machine, Solana aims at making slight trade-offs in these, and how state is stored, in order to optimize for raw processing power.
Don’t Get Dragged Down by Anchoring Bias
Jerry first heard about Bitcoin back in 2016 when the price was $500, however, he decided not to buy any. By 2017, he had convinced himself it was a strong asset however the price had risen to $2,000 so Jerry thought “Bitcoin was $500, this is far too expensive, I’ll just wait”.
Today the price of Bitcoin is $50,000 and Jerry has missed out on 2,400% returns. He fell victim to one of most proven cognitive biases: anchoring. This is where the first piece of information we receive acts as an anchor. We filter all new information against this benchmark even when it is not appropriate to do so.
So what can you do to make sure you avoid Jerry’s mistake?
Always test your assumptions
New information is constantly streaming in and has the potential to invalidate our assumptions. Keep up to date with the market and use new information to test old assumptions.
Never rely on a single piece of information
No matter how reliable we think the source, information can often be inaccurate. Diversify the sources which you use to obtain new data and use multiple pieces of information to form your hypothesis.
Do not place any reliance on your entry price
Instead, consider the chart as at the current date and think “would I enter the position at the current price?” If the answer is no, you should accept your losses and move onto the next trade.
Always consider how much significance the market will place on information
Markets do not care what price you sell at, what price you buy at and how much money you have previously made on an asset. Ensure you do not rely on any information that is more important to you than it is to the market.
Anchoring bias can be a huge problem for our finances but also in our lives, preventing us from disregarding initial conclusions, no matter how inaccurate they may be. Do not be like Jerry and do not fall victim to anchoring bias.
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Masterclass: Improve Your Trading through Psychology with Koroush AK
In this episode, we run through how to improve your trading through psychology, an essential ability for any trader.
Reward the process and not the outcome
Detach yourself from the outcome by building habits around things you can control (your actions) not things you cannot (the market) and you will establish behaviours that improve your trading over the long run.
Accept your failures and do not deem them as unlucky
If we do not take the time to understand our mistakes, we are destined to repeat them. Review your mistakes, understand why you made them and put in place measures to ensure you never repeat them.
Live a healthy lifestyle
Sleep well, meditate, exercise and eat whole, unprocessed foods. You will be happier, healthier and more mentally capable of building wealth.
Never consider unrealized profits as part of your net worth
This will lead you to believe you have lost money when your position drops in value and make it more emotionally difficult to execute your trading plan.
Whilst in a bull market, it is easy to think that success takes no effort however in reality this is not the case. Do not underestimate the amount of time, effort and motivation required to be profitable in the long run.
Do not trade overly large position sizes
If you feel yourself getting emotional about the amount of money you are about to gain or lose, simply decrease your position size. You will be less emotional and more capable of making better decisions.
Set up a framework for managing your own personal psychology
Everyone has triggers that can affect them emotionally from hunger to arguments with friends and family. Create a checklist of these triggers and ensure you do not trade if any of them are present.
When you think you need to trade every day it can result in mistakes, deviation from your system and tunnel vision that removes your self awareness. Do not force trades, instead, wait for the optimal market conditions to come to you.
Always have a plan before you enter a trade
Emotions are highest whilst you are in a trade, making you susceptible to mistakes. Have an exit plan whether it be for a loss or a profit, before you enter any trade.
Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.