The aim of this article will be to examine the basis on which the trader/ investor has cause to be confident in buying some alt positions. I’ll first review the strategic reasons why an alt buying policy could be, far from reckless, actually an optimal approach, one that balances out risk on the one side and reward on the other, before going on to the charts themselves.
Strategic Alt Buying - for Hedging and Profit-Taking Purposes
Naturally, we imagine and so desire the maximization of profits from speculation. And yet, more realistically and rationally, we soon come to realize that there is a trade-off to be had when we come to factor in the uncertainty principle that comes with all the vagaries of a very volatile market. The trade-off is one of the need to abandon the desire for maximization in order to establish a more hedged position. This involves a more pragmatic mindset of ‘good enough’. This also acknowledges that while profits are potentially there to be had, the unrealistic desire to maximize them is illusory, which is where we most often go wrong in our speculative activities. Furthermore, what’s involved in a hedged approach is a shift from an emotional to a more rational outlook. From the more rational, sober and pragmatic perspective, or in short, from the perspective of the savvier investor, the desire to maximize is always checked by the imperative to hedge, where in hedging the speculative instinct, the desire to maximize, is moderated. In the world of sober investment, the speculative instinct is satisfied whilst also restrained to a certain extent - one speculates under no illusions, where risk and reward are held equally in the balance. Having established the need for hedging that over-rides the primal instinct to maximize, now for a quick review of how alt trading can perform that function before going onto the charts themselves.
Yes, most of us are investors in Bitcoin for the longer term. The relevant question, for the investor, now becomes how to hedge and how to take profits. As a hedge involves willfully thinking the opposite of your investment - “to take an off-setting position in an asset or investment that reduces the price risk of an existing position” - this has to involve the accumulation of USD, the natural trading partner of Bitcoin.
The first step here is have a core USD position to off-set and counter-balance your Bitcoin exposure - remember, due to the uncertainty principle, the hedged investor must maintain “an off-setting position in an asset or investment that reduces the price risk of an existing position”.
The next step - if wanting to increase this USD position in order to match and maintain a counter-balancing hedge to your long-term position in core Bitcoin - is to trade some of the more volatile alts for USD. Keep in mind that the accumulation of USD here is your hedge [this runs counter to your main investment strategy to buy Bitcoin, as it should].
Your hedging position of a counter-balancing USD fund performs another function here - it doubles up as a profit-taking strategy. The pragmatic investor, with the superstructure of a strategy rising from the base of the uncertainty principle, must always be looking to skim profits while the going is good. Of course, the reader might object that trading alts is akin to gambling, a million miles removed from more responsible investing, but not all trades are created equal - those on a longer-time frame and entered on the rationale of hedging are not only less risky, but are arguably a form of risk management.
And finally to a few of the more major alt charts themselves, which of course are charted against USD. These will also be longer-term charts as the focus here is on the macro, and the likelihood of a bottom being in.
Weekly/ longer term MACD is in a strong position, back into positive territory - combined with the year-long formation of an ascending triangle, price is looking poised to strike higher in the coming months. A bullish chart. Remember, the beauty of an alt position, over and above your long core position in BTC and staked at a favorable time, is you have something to sell and take profits in on a manic market… without having to sell your BTC. Add to this that a major alt is likely to be even more volatile than BTC, then a profit-taking strategy will suit this kind of alt trade, which may indeed not only outperform BTC, but also 'off-sets’ that long term position in BTC [as per above].
At first glance solid with price in a horizontal basing range for well over a year now. A macro retracement of 38% since the since the massive move up from 2019. The longest term downward diagonal of resistance being broken to the upside. Yet to break out of this range though, which is something to watch. A bullish chart given the basing range and its previous record of massive gains. Once again, in establishing a position in a coin like this, you secure an option to realize gains on in a manic market while remaining long BTC.
Solid gains look to have been locked in on a correction that has held up well - a 38% real retracement of the previous massive move up outside of the ascending triangle that formed. After a correction of the strong run on the initial capitulation to the 50% level, the weekly MACD looks once again to be strengthening with a contracting histogram. Watch for price to cross the longer-term diagonal of resistance.
Weekly MACD situated in a promising postion just below the zero-line. This time a half-year horizontal range in price after what looks to have been the final capitulation - given price is now breaking the longer-term diag of resistance. Level to watch is the upper bar of horizontal resistance that tops the current range of price. Once again, that solid macro retracement of between 38 and 50% that most of these charts have shown.
Lastly, a comparison of the gains the above coins made in the previous bull market, where peaks are measured from early 2020 [the Covid crash].
SOL and MATIC were on a par being the huge outperformers. LINK and ETH were also outperformers [of BTC, as you’d expect being more volatile] but to a lesser degree. Will the peaks be as great next time? I highly doubt it due to diminishing returns in a maturing market, but even lesser gains would be ‘good enough’, and I think it reasonable that the ratios of the gains between the coins should hold.
Of course the reader might object here and wonder why the retracements are not measured [which will be greater as these coins are more volatile]. But the point of this exercize is the selling of alts on a peak [and buying at the bottom], so the peak measurements are the relevant ones. That said, here is a comparison of the retracements, where LINK is now the outlier [given it held its previous gains].
To sum up, this article has shown that buying alts technically [at the bottom when sentiment is low, not at the top when it is high] not only functions in allowing one to take profits, but also functions as a hedge to their existing Bitcoin core position. Not only would this diversified strategy enable the taking of profits, but those profits would be greater if one were just trading a portion of their BTC. Remember, the trade is always looking for the most volatile of assets.