The #1 mistake most crypto traders make
When it comes to Technical Analysis of crypto charts, everyone is an expert these days. I see it here on Steemit plus plenty of other places too where people are posting up charts with lines on them, doing a bit of pattern recognition and then predicting where the price is headed.
Check out the lines on this bad boy!
Now don’t get me wrong, I am a big believer in using technical analysis but the key insight that is needed to use technical analysis effectively is to understand how and why it works. It is not a simple case of following the rulebook, drawing trend lines and identifying patterns. It is actually more about the psychology behind the market….but I won’t go down that rabbit hole just now as it’s a whole other subject, let me get to the point of my post.
Don’t be this guy
If you want an example, just have a look back at the last week in the crypto markets. A week ago you would have seen plenty of technical analysis predicting this coin and that is going up in a trend or is about to break out with a big gain…..and then BAM, the Chinese comes out with a ruling that bans ICOs and it throws the WHOLE crypto market into a tailspin.
This is a perfect example of the fundamentals overwhelming the technicals and I constantly see traders who rely purely on technical analysis get caught out when the fundamentals change. A good technical analyst always has their eye on the fundamentals and is aware of potential upside or downside risks that can occur due to a change in the fundamentals. Technical analysis can work really well in the absence of any changes in the driving fundamentals, but when the fundamentals change it MUST be respected.
Now admittedly the Chinese ruling caught the market by surprise, but there are plenty of other instances where changing fundamentals were telegraphed way in advance, but ignored by many. The early near-unanimous signalling of SegWit2x during the great coin split fear campaign of July was a great example of that.
So the next time you are reading someones post with pretty charts and lines on them, talking about triangles or cup and handles, have a look to see if they are paying any attention to the fundamentals of whatever coin they’re talking about. If they are ignorant (or ignoring) the fundamentals then they are vulnerable to committing the #1 mistake, and if you follow them on a trade the chances are you’re going to be vulnerable too.
Be this guy
Images and Credits :-
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For all kinds of charts going up and down, I don't quite care. The whole point of Steemit for me is a long run.
I know I just barely started my journey here, but I imagine all this more like prices of gasoline (in our country, they are constantly changing). But we don't care about prices. Because if we would then when the prices would be higher we should drive less, and when they would be lower we would drive more. But we don't - we always drive as much as we need.
And that's my motto here. Try to learn a lot, try to find a system which would work for me and in the end help the whole community to get better and to improve where it can.
And thanks for sharing your thoughts.
I've never been a fan of chart formations and wave patterns. Other then being aware of certain indicators and looking at general resistance and support areas, I prefer to operate on fundamentals.
Of course, that's not useful to all the day traders who want instant results.
It's an awereness of both fundamental and technical factors thats important to have.
You can do very well just focusing on fundamentals and investing for the long term. Technicals can help pick good entry/exit points but if you're a long term HODLer then technicals are far less important because in the long run technical factors tend to average themselves out.
I'd be curious to know what you're holding, if you're open to sharing?
That my be true in crypto, but I'm not sure it's true in other markets anymore. The bonds of most developed nations trade ludicrously far from fundamentals.
My main holds atm are Steem, Bitcoin Cash, EOS, OMG, Neo, Monero.
I shoulda waited longer to buy on EOS though. And Neo, didn't exactly catch the bottom there either.
You are dead right about the bond markets. If you believe in fundamentals you'd have to expect a reversion to the mean is due. Though maybe we'll see a reversion to poverty if some get their way ;)
Thanks for sharing your holds. I don't know much about OMG but the rest all seem like really good long term holds.
OMG looks like it may be a big one. People are really going nuts for it. Check it out. They have some potential big partnerships coming.
I feel the recent fall in BTC and the other coins was also due to this other reason, and it's fundamental - bitcoin and many of these had gone up too high, too soon.
Many of us who already had those coins had benefited. I was thrilled too, of course. But some of these were so eye-popping that I was also getting rather nervous. It simply wasn't sustainable.
Bitcoin's rise wasn't as much, percentage-wise. But to break past the previous high of $4,460 and then immediately challenge the psychologically formidable level of $5,000...that was too much. Something had to give. The cautious ones quietly took profits. The Chinese matter was the spark that ignited a correction that was due.
You are right, the correction was due despite the Chinese news. I sold some of my bitcoin just before hitting the $5K mark but I couldn't say that decision was due to technicals or fundamentals.
The 3rd approach I consider when investing is a contrarian one. That's about identifying when the market is running too far, usually a big spike up or down as a result of fear or greed but it also can happen because people are trend following (via technicals) for too long. Contrarianism is about taking the opposite position to the herd.
Contrarian seem to work great for crypto, but mostly for bigger cryptocurrencies (Bitcoin, Ethereum, Litecoin, Monero, etc.). When small cryptos are growing, they just positively react on every Activity Report, even on social media updates. And after that you don't want to go against such a public opinion, as in most cases only small market correction may be expected.
As long as there are good updates for a smaller crypto, the price is generally growing (until the price positioning compared to established cryptos becomes not resonable or until some really bad news). NavCoin - fresh example. Increased a few times just because of a single featured article on CryptoCoinsNews. Continuing to grow because the team is continuing to be active in updates. I hope I am not right (as I want to buy it at lower price), but it seems to me it will be growing for a long time until market correction happens.
Not to rub it in, but I was one of those lucky sods who had gotten some Navcoin before it started the big upward move :) For quite some time, it was mostly in the range of 0.23-0.27 and not going anywhere.
In my case, doing a bit of basic research had paid off. I'd often click on the link of some coin at WorldCoinIndex .com, see the charts etc. and go to the website, Reddit and BitcoinTalk. Navcoin was out of the Top 100 in terms of 24-hour volume. More of around 150 or so a lot of the time. But I started to become interested after reading the content at its website. About the team especially - these people look to have credibility. So I bought some units...and was thrilled when it shot up.
By the way, I had taken some money off the table by selling at various price levels. Then bought a few back a couple of days ago. This is a coin I'd want to have as part of my core holdings. In fact, I like Navcoin so much that I'm also running a node on my laptop. Not so much for POS rewards but because I like the coin, the dev team and users at the discussion groups.
Very interesting story. Hope it will be a success story for you, mate. Really good potential in this coin. Anything can happen, but of smaller coins NavCoin really seems to be one of the best choices. To become big it needs more penetration into the real economy: merchants, ATMs, etc. And this is a challenge - during this long way something may go wrong!
One can only do research, buy and... hope. When it comes to these coins (Navcoin, Vertcoin, PIVX, Digibyte etc.), we can argue either way on how they will fare. These will be just guesses and speculations.
Bitcoin and the more well-known coins and tokens have done very well price-wise over the past 12 months especially. And cryptos are increasingly gaining the attention of the mainstream throughout the world. It is indeed tempting to conclude that "the sky is the limit" .
This may well be the case in the coming months ahead, especially for some of these coins (I'm hoping Navcoin will be among the favoured, of course). But I'm also the cautious kind who tries not to get caught up in the hype and exuberance too much. Have to also think about the various negative developments that could happen. Including the very unpleasant thought of these cryptos crashing down to earth for whatever reason.
I hope things will continue to be like this for a while yet. But if this were a rock concert in a stadium, I'm staying near to where there's an exit. Not at the front where the action is.
By the way, I have nothing against HODLers who will not sell their coins come-what-may. Holding on to getting "the really big rewards further down the line". And they may well be right. But I'm doing it the way I'm most comfortable with - taking profits at different price levels (but not selling all). Then buying some again should the price go down (it tend to).
I've read and watched videos that say the better strategy is to just ignore the daily and weekly price movements. The "Do Nothing" (except to add more) approach. Again, this might work very well with some coins. My best wishes to them. But I'm sticking to my own strategy, which also includes being a contrarian.
I think it's a very wise approach you have. Unfortunately markets often are volatile and crashes can be common, especially in crypto. So it pays to not be greedy and take some profit when it's there to be taken. Those guys who HODL through the big crashes....it must be a terrible feeling.
You can say that again. BTC going down from $2,200 to 1,800 last July was already an uncomfortable experience for me although I held on. And the rebound came quite fast. But how was it for those in 2014 when it peaked at $1,200...and then tumbled all the way to $300 or so?
Yes, those who HODL are having the last laugh when it went back up to 1,200...plus added much more. But that took months to achieve. Many had given up up and sold before that.
It requires a lot of faith to hang on tight for long periods of time. I don't have that. Although I believe in the future of cryptos, I don't want to be a partisan or zealot. Must always remember my main goals: to protect my capital and preserve as much profit as I can from these "good times". I will continue to sway with whichever way the wind blows.
Enjoyed reading your post and it's very good advice,what a shock that was,the Chinese banning ICO's who would have guessed.I've also seen plenty of charts lately predicting massive gains and have been tempted to buy more coins than i could really afford,but i resisted lucky enough,Feel so sorry for people who bought at the top,especially new people buying for the first time,but you have to remember that there is always a danger that this will happen.Never get carried away with all the hype going around and don't buy what you can't afford to lose .Thanks for sharing.
Thanks. I think hype is a big problem in the crypto space because for many the technology and what its capable of is not well understood so a slick marketing campaign can go a long way.
The old school investors are wary of getting involved in crypto and we have a lot of younger and inexperienced investors (a.k.a. retail investors) involved who are prone to getting caught up in the excitement. It's one of the big factors making cryptos so volatile.
Great advice.....I'm resteeming since it's a really good day for this advice. Like me, others are going crypto bargain shopping right now.....but to add to the advice......"don't put all your eggs in one basket"
Thanks for the Resteem. Much appreciated!
There are so many cryptos to choose from, diversification is very important. They can't all be winners but a good diversified portfolio can take out both the risk AND the volatility.
Exactly!!!
Well said!
With anything in investing you have to play with whatever advantage you have. For me, that is not technical knowledge or stock picking ability, it is time and patience...
Cheers
Holbein81
Time and patience. I wish I had more of those 2 things :)
LOL at that chart! Also the Chinese not chicken meme; love it. Good advices there too. I think I need to quit trading at this point and just keep some USDT on a few exchanges for use when the market crashes like this...
You have to be careful that you don't "catch a falling knife" when the market is selling heavily. I prefer to wait until the first bounce or two and get some confidence that the selling is over.
Also, be very careful leaving anything on the exchanges. They are still a big counterparty risk and if you don't know what I mean by that, just put Mt Gox into Google search for an idea of what can happen.
Great reading for someone like me who just started trading ;)
Glad to hear you got something out of it. You should follow me here on Steemit because I often talk about stuff relevant to new traders :)
good one! Love your chart lol
Thanks Shelly. I was going to draw one of my own, but got lazy and asked the google. I've seen some shockers but even that one surprised me. It is totally illegible!
Sage advice. Also, that chart!
Thanks Choogirl. You're not short of sage-like advice yourself, so not surprised to see you pick up on the Confucious quote ;)