The Truth About BTC. Bullish Selling or Bearish Dump?

Market Meditations | November 27, 2020


Hindsight analysis is always easy, but I think that by looking at some factors that contributed to this dump and explaining why this isn’t necessarily bearish, we can put some of our readers at ease and better prepare them for the next time this happens. Let’s dive in!

  • Chinese Police Have Seized $4.2 Billion Cryptos From Plustoken Ponzi Crackdown. For the first time, a Chinese court has detailed the breakdown of all the crypto assets seized from the PlusToken Ponzi scheme crackdown. A massive amount of both bitcoin and altcoins has been seized by the Chinese police, amounting to $4.2 billion in total at today’s prices. The court said the seized cryptos “will be processed pursuant to laws” and “forfeited to the national treasury.” According to the latest ruling, the Plustoken scheme officially started in May 2018 and advertised a (non-existent) crypto arbitrage trading platform. The platform advertised daily payouts but required users to deposit at least $500 worth of crypto in order to participate.Read more.

  • Dai Price Increase Led to a Massive $103 Million Worth of Liquidations at Defi Protocol Compound. The market-wide correction on Thursday was yet another stress test for the decentralized finance (DeFi) ecosystem. Because of a momentary price increase in the DAI stablecoin, massive liquidations with a total worth of $103 million occurred at the DeFi protocol Compound. The price of DAI at Coinbase, which is used as the source of Compound’s price oracle, increased by 30% which led to under-collateralized loans on the protocol and thus resulted in a massive amount of liquidations. Market conditions were also cited as the reason for $8 million worth of liquidations at dYdX. Read more.

  • Gold Drops Below $1,800 to Lowest Since July on Vaccine. Risk on leads to a decline in the value of safe haven gold. Gold slid below $1,800 an ounce to the lowest since July as positive vaccine news and a clearer political picture continued to undermine the haven. Bullion fell steeply in a repeat of losses seen Monday, when news of AstraZeneca Plc’s effective vaccine and positive U.S. economic data hit demand. The decline accelerated after gold moved below its 200-day moving average. Prices are heading for a third weekly drop as investors swap into risk assets looking to profit from the eventual economic recovery. Read more.

  • Libra Plans Dollar-Pegged Stablecoin Launch in January 2021. On Thursday, The Financial Times reported thatThe Facebook-led Libra Association is targeting the controversial launch of its first stablecoin in January next year. According to one of the sources, the first stablecoin would be dollar-backed while other planned single and multi-currency stablecoins would be launched later. In order to launch, Libra needs to get a payment services license from the Swiss Financial Market Supervisory Authority (FINMA), which could be granted in January. Read more.

  • Trump, Still Defiant, Says He’ll Give Up Power If the Electoral College Backs Biden. President Donald Trump said he’ll relinquish power if the Electoral College affirms Joe Biden’s win, but he signaled he may never formally concede defeat, and may skip the Democrat’s inauguration. Trump fielded questions from reporters on Thursday for the first time since his election defeat, speaking at the White House after a Thanksgiving teleconference with members of the military. Read more.

#27 Waro: Publicly Turning $10,000 Into $1,000,000

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Waro (@warobusiness) is a futures trader who publicly traded his portfolio from $10k to $1 million. Before trading full-time, Waro…

Were You Overexposed to BTC? Let’s Recap on Risk Management

Market Meditators, we have experienced a lot of volatility this week. As per my tweet, I like to hope that everyone is coping ok. Perhaps some people were overexposed.

Whilst this section is usually not available on the free edition, I think it is important that we all recap on risk management together. And so, today, I am delighted to share it with free subscribers too.

Let’s get started.

1. Trade with Stop-Loss Orders. Stop loss orders are the ultimate risk limiting tools. If you trade without stop-loss orders, you are exposed to virtually unlimited risk. Always have a stop loss order in place for every open position, and don’t move the stop-loss order except to protect profits. Do your analysis and risk calculations before you enter the trade, and then stick to your trading plan. 

2. Leverage to a Minimum. Don’t be seduced by high leverage ratios and take too large a position. Trading too large a position relative to your available margin reduces your cushion against routine, adverse price movements. Keep your use of leverage to the minimum needed to trade your strategy. You can request a lower leverage ratio from some brokerages to systematically limit your leverage utilisation. Just because they offer 100:1 leverage doesn’t mean you have to use it all. 

3. Trade with a plan. The best way to limit the inevitable emotional reactions that come with trading is to develop a complete trading plan from entry to exit (stop loss and take profit) before you ever open a position. 

4. Stay on Top of the Market. Make sure you have a firm grasp of what’s happening in the market. This won’t guarantee a winning trade, but it will alert you to potentially disruptive circumstances that you can factor into your trading plan to limit overall risk. If you follow Market Meditations, a correction should have been on your radar for some time.

5. Trade with an Edge. Pick your spots and choose your timing; don’t get pulled in by the noise. Keep your ammunition dry, and look for trade setups with a clearly defined risk/reward scenario. Be opportunistic and spend your time and efforts looking for trading opportunities still to come instead of getting caught up in the market move of the moment. 

6. Take Profit Regularly. Taking profit regularly is the surest way to limit risk. By definition, if you take profit (even partial profit) you’re reducing your exposure to the market. You can’t go broke taking profit. 

7. Taking Money out of Your Trading Account. If you’ve made some money in the market, make periodic withdrawals from your trading account. If it stays in your margin account it is subject to future trading decisions which represents an unknown risk. Remember why you are trading, it’s not just about the money but what you can do with it. Withdraw your profits from time to time, and spend or invest them in the way you always said you would.

And there you have it. As essential as your trading strategy is your risk management. For more information, check out my free course.

Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.