The Importance of Buying Levels

Dear Readers,

Anchoring Etiquette: Rules of the Rode | BoatUS

Here we are with the market slowly but surely rising in the aggregate. As they say, a rising tide lifts all boats… even if disturbed at times by cross-currents and roguish waves. For both traders and investors, their competitive advantage lies in being able to ride out both the volatility and the tide by staking longer-term positions, and then to eventually, sometime in the not-too-distant future, lift anchor and sail on the full tide. Of course, some will say that if one’s concern is not daily volatility but long-term price, why wouldn’t a policy of averaging in suffice as opposed to all the focus on a fallible TA. Wouldn’t the difference between buying levels be irrelevant, and make TA redundant, if the envisaged vastness of eventual prices make those differences insignificant? Why quibble over a few dollars, over the few meters of a tide as comparable to the unplumbable depths of the ocean? It’s the intention of this article to outline the way in which your buying level may actually make every difference, and that this very difference lies in what we know as ROI [return on investment]. My chart of choice to serve as the necessary illustration for this article will be ENJ/ USD, one I choose as much for a change as for the relatively well-structured nature of price development on the chart.

As subscribers to my alts page would be familiar, green circled arrows here represent possible entry points, and the solid orange arrow represents an actual entry. For an even later buyer/ entry point, the furthest right green arrow of a horizontal break would be the next obvious buying area. Generally speaking, the earlier your buy, the better - that is, for the longer-term position trade. That said, there is always room for TA to identify better buying points in a volatile market often prone to FOMO. On the above chart, an 8.7x return is targeted in the relatively shorter-term [always add a 1 for the ROI/ return on investment]. If you bought instead on the later horizontal break, which is near twice the price, the return is unsurprisingly near halved [4.7x]. This gives a potential loss of 4x on your trade [8.7x minus 4.7x]. It may not seem too drastic, but on the longer-term position trade this picture of a potential loss begins to alter somewhat as the following chart depicts.

Zoomed out, we have our longer-term target [where the best money to be made may just involve sitting… until the time to sell]. It is now quite a different story if you enter a position at twice the price. On the longer-term target, the return on the position bought at twice the price once again unsurprisingly gives double the return [47x as compared to 24x]. But the real kicker here is that instead of representing a mere 4x potential loss by buying the higher position [as in the earlier and shorter-term trade], you know see a potential loss of a massive 24x by having bought the higher price. This disparity becomes even greater on the basis of an even earlier buy that is to be sold even later as the following chart portrays, and with a different coin.

The importance of the buying level becomes even more obvious on the longer time-frame. Here the XVG/ USD chart shows a position bought at the lows and held until now, and also to be held into the future for a targeted spike in a manic market. If such a spike [and a sale on that spike] eventuated, you’d see a stupendous return of around 391x. If, on the other hand, the same coin was to be bought now, and held for the same target, the return would be 90x. Even so, not too shabby. These are the huge differences in potential returns that can be seen in the exponentially moving market that is Crypto.

To sum up, it’s been my intention here to illustrate on the one hand the importance of your buying level, and on the other the importance of just sitting on that buy. This may indeed prove to be the best policy for making the most lucrative gains - that is, if the envisaged cyclical spike in the alts eventually plays out. Of course, as we all know, the market does not make it easy, and hence the volatility. Your best bet, in my opinion, is to have a majority of your buys in longer-term position trades, and then a minority of them in shorter-term swing trades that are more of a pure play on the volatility. As the one hedges the other - where you are taking some profits while still waiting for [potentially greater] profits - this will take the pressure off you somewhat [it is the longer-term position trade, a near hold though more of a sit, that will feel more like an investment to those used to shorter-term trading in Crypto]. For it is the relaxed anxiety-free trader that is most likely to go the distance, make the gains, and also be in a position to sell having acquired a habit of doing so with the odd shorter term [though still multi-month] swing trade.

Stay [relatively] safe out there,

Dave the Wave.