Establishing Trades in the Alts, balancing out the Technicals with your Buying Strategy
I’ll often be asked by prospective buyers of alts whether price will go up or down in the short term. Generally speaking, on the one hand, they’re either starting to incipiently feel that phenomenon we now as FOMO, or on the other, they are looking for the most ideal price to buy. The problem with this ‘dilemma’ [for the two stances are really tied at the hip as waiting for the ideal usually culminates in FOMO at a later date] is the lack of a realistic buying policy. A realist will recognize the impossibility of buying the exact bottom [which would be a perfectly mathematical point] and will accept that the desire for such is largely illusory. That said, the realist will however look to identify a technical range within which a very volatile coin could be bought whilst also accepting risk as part and parcel of that buy.
The main point of this article is to emphasize the distinction that should exist between the technicals on the one hand, and one’s buying strategy on the other [this is the distinction in which realism consists]. This distinction is crucial to observe in my opinion due to the fact that we can all too easily fall prey to overly relying on the chart, with its ideal price projection, to the detriment of a more realistic buying strategy. In this regard, you could take as a maxim - technicals without strategy is empty, and strategy without technicals is blind. Having the two balancing out each-other gives a right weighting to TA in my opinion, where we don’t expect too much from it while at the same time giving it its due weight. This is what I often refer to as ‘realistic TA’ - the realism consists not so much as TA supposing to represent the reality of future price action, but rather as a recognition of the limits within which TA can operate. It inhabits that murky world between fact and fiction, which we know as hypothesis. But it is also due to this hypothetical nature of TA that we can also consider it rational and scientific [scientific referring to the empirical testing of hypotheses against a reality that’s always beyond our explicit grasp]. Within such a pragmatic philosophy of TA, we’ll have some courage/ confidence toward it while at the same time avoiding the pitfalls of timidity on the side, and recklessness on the other. The reader may be thinking this all a bit theoretical, but there is a very practical point to it, and that is to puncture the illusions we tend to harbor, whether that be TA taken as clairvoyance [a naïve realism that misunderstands TA as telling the future] or the countering illusion, or rather the dis-illusion involved once the previous pretensions of TA have been thoroughly discredited, and where TA comes to be perceived as mere propaganda or marketing.
Given that the fallibility of TA has been established, where its practice is to be considered as a risk management to both sides in a vortex of very volatile price movements, one’s buying strategy must in turn come to the fore. Given that we are dealing primarily with risk in this market [risk of missing the move higher, and risk of prices correcting], and given that the TA on the longest time-frame favors higher prices in the aggregate [an obvious upward trend], a buying strategy will firstly weight risk to the one side of missing out. Given the risk of higher prices, a cash heavy buyer with next to no exposure to Crypto should establish some positions in order first to just cover that risk to the upside. Once risk to the upside is met, by gaining some exposure and then in turn by increasing that exposure, the weighting of risk changes to the downside - one becomes a ‘fussier’ buyer [one could almost say reluctant] that looks for more ideal prices, indeed, may even look to swing trade the most volatile of alt coins as a hedge against positions in BTC and major alts [if/ once heavily exposed], for the nearest thing to certainty in the world of Crypto is volatility. With these preliminaries out of the way, onto a practical example of applying a buying strategy.
Applying a Buying Policy/ Strategy
The VET/ USD may be useful as an illustration though many other coins could have been used. There is a general principle involved here… and also a general pattern at work in the alts.
The high time-frame of the zoomed out chart helps first to orientate the reader to the long-term trend that may be at play. Note that I say the reader as a chart is always to be actively read, i.e.; it is not just providing some random data points to be consumed.
It’s on the medium-term chart that the technicals really come into their own, for here TA is looking to find that range within which it would be reasonable to buy [never a certainty, and, hopefully, never a coin toss]. As for the shortest term charts, I consider them largely a coin toss, for on the shortest time-frames volatility is most random. And so to the medium term chart:
First of, the 38% macro retracement of a two year move up, and something also reflected in a lot of other coins that have been analyzed. Next, the possible basing pattern forming, and the local breakout higher, which has happened typically all of a sudden for prospective buyers. The question facing those that are relatively cash heavy [with relatively little alt exposure] is whether to buy or not. And here a buying policy should [imo] come into play in order to complement or complete the technicals.
1] Given the past history and performance of the coin, there is a good chance of much higher prices. One wants to buy in order to cover risk to the upside.
2] Given the more recent history of volatility, there is further risk to the downside, or at least of a further test of those lower prices already established. One holds off to cover risk to the downside.
3] Given this ‘Mexican standoff’, one has to play the odds based both on the technicals and levels [or lack of] exposure.
4] Those over-weight in alts already, can ‘afford’ to wait for a re-test of lows, or failing that, buy at a higher breakout level, where the bottom has been well and truly confirmed [as far as anything can be confirmed]. They could set a bid for something like the lower tag.
5] Those underweight in alts, with little to no exposure, would not really have the ‘luxury’ of waiting…. as they have as yet not covered risk to the upside. In a sense, their buy is an insurance buy with an opportunity cost. This cost would be the likelihood of going underwater for a period until the trade recovered to push through to new highs.
6] Both kinds of buyers here would have confidence is the longer-term trend [not certainty, and so hedged as per other articles], and confidence in a bottoming range… though thoroughly uncertain as to the direction of short-term volatility.
And lastly, a closer and more detailed look.
What’s of major significance for me here is the recent elevation of price giving it a solid buffer to the downside [50%] should we see renewed downward pressure in BTC. Added to the over-all 38% macro retracement, and the bottoming pattern, these give further confidence to your bids. Which bids you actually set [if not having already bought previous realist bids], would of course need to take into account your existing positions and tolerances for risk as outlined above. The main consideration would be one of sacrificing some of that hope for lowest prices in order to first gain some exposure in the alts, and for the longer-term. From there, once that ‘layer’ was first put in place, one can make other trades [buys and sells], with some of the heat of risk taken out of it. Indeed, may even be able to purely trade the volatility at some point in order to hedge Crypto longs altogether.
In sum, I hope this article has been helpful for those on the sidelines finding themselves currently in a conundrum of whether to buy or not. In my opinion, circumstances such as these require a rational strategy in order to take the emotion out of it. The obvious analogy is the general faced with the radical contingencies involved in the fog of war. Always better to be a master of your own fate in my opinion, than one of the poor foot-soldiers in the trenches that all too often just become cannon-fodder of the market.
Until next time,
Stay [relatively] safe out there,
Dave the Wave.