What's Up With The Market? And Some Thoughts About How To Play The Market Going Forward
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What's Up With The Market?
The market has been brutal lately.
Just in the last 7 days $BTC is down over 30% and down to a record low for 2022 at $19,000. Ethereum on the other hand is sitting at $970 - $1,000 (down 40% in the last 7 days).
The question everyone asks themselves is what's next? And how did we get here in the first place?
To answer the latter first: it's a consequence of the monetary policy of the FED. Too many dollars have been printed in the last 2 years, and now they have to remove it from the system again (quantitative tightening).
I've written a little bit more about how we ended up here in the first place here:
What's next?
There's no doubt that the macro conditions look awful at the moment. Crypto has had a 70% correlation with the stock market for the last 6 months, so it's natural that crypto follows when stocks perform poorly.
S&P500 is now down 24% from ATH, while NASDAQ is down 34%. Both are in the solid bear market territory.
My expectation is that we will continue to go lower in all markets until the inflation number looks better (it's 8.6% as of now). Obviously the markets won't go down in a straight line, but I expect it to be harder to earn money in the market going forward.
Because of this, I'm not in a rush to fill my bags with $BTC and $ETH yet, as I don't think we will see a V-shape recovery as we did in March - June 2020. I will wait to go long until I get confirmation both fundamentally and from a technical perspective. A fundamental confirmation should be when the inflation ghost looks less scary. From a technical perspective could be when we get a blue candle with the indicator "Heiken Ashi Pivot Blue Candle Over Regular Candle" on a weekly timeframe.
As you can see from the chart above, the last time we saw a weekly blue candle was in March. And I'm not very confident we will see one now either.
Okay, I'm not in a rush to fill my long bags. But what do I do in the meantime?
Playing The Market
The best option in hard market conditions is probably to just wait.
That's what I do for my long bags.
But because I'm following the markets constantly and spending a lot of time on Twitter, I also do some trades.
I trade news, I trade TA setups, and I trade on macro events.
Am I always successful? Absolutely not. But with good risk management, you could prevent big damage.
Some rules I've created for myself:
1) Never trade with leverage. Only spot. I only use leverage as a stop loss on future contracts in order to have less liquid money on exchanges.
2) Before you enter a trade, have a stop loss and a TP (take profit)
3) You can use any system to trade, but the most important thing is to be strict with your system. Discipline and human psychology is often our worst enemies in trading
4) Backtest your strategy with Pine Editor in Tradingview before you try it live
5) Also, before you trade live in the markets for the first time, open up a paper trading account
On top of that you should ask yourself a couple of questions before you start trading:
Why do you want to start trading?
What role does trading play in your life?
What are your goals?
What is your psychological profile?
What market do you trade?
What timeframe are you working with?
What trade setup do you use?
What are your entry & exit rules?
What are your risk management rules?
What are your back-testing data?
If you really want to learn trading I highly recommend this free course from one of the best traders out there, @CryptoCred:
It's 17 Youtube videos, so make sure to watch them all and take notes.
I've linked part I below.
That's it for this time!
I usually link some good Twitter threads at the end of the newsletter, but this time I'm going to link a thread I made 2 days ago with the 9 best threads I've read recently.
Enjoy.