Wednesday, 31 May 2017

Bitcoin Rush and Parabolic Rise

This post / article is the follow up on my previous post Bitcoin Price Breakout on Japanese Legalization of Bitcoin. So whenever i say "previous post",  "that post", on such thing, i mean the post to this link.

I said in this previous post that i wasn't gonna trade in and out because my investment in Bitcoin is small (but getting bigger rather quickly). But when i saw this chart below, which is not a BTC price chart, but a Google Trends chart, i thought i should get out of Bitcoin, temporarily.

Google Trends showing interest for "investment in Bitcoin"
Google Trends search terms
Spike occurs for the period 14 May to 20 May 2017

Bitcoineer, pirate captain
      Arr...I only take Bitcoins !
I also mentioned in that post that there're 2 historical spikes in Bitcoin price chart. The 1st spike occurred soon after the positive U.S. Congressional Hearing on Dec 2013, and the 2nd spike occurred this month on the Japanese legalization of Bitcoin. But if you look at the interest on "How to invest in Bitcoin" above, the spike in Google Trends search for this month dwarfs the small blip in Dec 2013. This is understandable because Bitcoin is more widely known today than Dec 2013 when Bitcoin was hardly known outside a small circle of Bitcoiners (or is it Bitcoineers? I prefer "Bitcoineers" because it sounds like "Buccaneer". I'm also thinking of the Iceland's Pirate Party, who's an arrdent supporter of Bitcoin. Arr!).


The vertical spike in the above Google Trends chart suggests a sudden surge of interest in the public that draws a large a pool of new money into Bitcoin. As they say "easy come, easy go" or "here today, gone tomorrow". If they come all of the sudden, they also leave all the sudden. A flash in the pan. I'm referring to the trading, not Bitcoin itself; it remains at least for awhile (nobody knows how long). As a long term Bitcoineer (i'll start to use this term from now on. I hope it'll catch on), you shouldn't participate in such a Bitcoin rush. Leave it to the day-traders and newbies. The newbies are, by their very nature, chase market, and pushing prices higher. But if short-term trading is your thing, this parabolic rise was a fantastic opportunity. I said "was" because it's over, for now, until the next big event, and the accompanied parabolic rise.

Bitcoin price chart showing 2 event that sends price to parabolic rise
Bitcoin price chart showing the 2 pivotal events that send the price into parabolic rises

Another thing i mentioned in the previous post is that while Bitcoin is more well known today, its spike in price will still be less than that in Dec 2013, which went up by some 8.5 times.

I also said in the post that there will be a pull back quite soon. But i didn't expect to be so soon. I keep forgetting (more accurately disbelieving) that things can happen at this lightning speed compare to any other market outside crypto markets. I have to get accustomed to the fact that what takes other markets months and years to play out would only take crypto market like Bitcoin days and weeks to play out. Sometimes hours.

If the price of an investment - Bitcoin, gold, shares, etc - only move up or down at a steady pace, the best strategy is just to hold it. Trading in and out of small moves will lead to losses due to brokerages and imperfect entries and exits (nobody is perfect). But if the moves are huge such as those in Bitcoin price in the final 2 weeks of the month of  May, trading in and out make lots more sense.

Bitcoin price chart on Poloniex as of 29 May 2017
Bitcoin price chart on Poloniex as of 29 May 2017
The red bar with a very long wick underneath implies the bottom is in, especially when it crosses an important MA

After seeing the Google search terms spike, i decided to get out of Bitcoin at $2600 (my actual sell order was $2580. I always give some margin of safety). As soon as the sell order is filled, i placed a buy order for $1830. I expect the price would pull back to $1800 (again for margin of safety, i bought it at $1830). Of course, i didn't expect the price to drop as low as $1548 (on Poloniex where i traded anyway). This is very typical of Bitcoin's head spinning volatility. It could overshoot as well as undershoot by a wide margin.

So my profit for this quick trade is $2580 - $1830 = $750. This is certainly a worthwhile effort, considering that i didn't even have to try very hard to get as perfect an entry and exit as possible. In fact, i missed the entry price by a huge margin (the price dived as low as $1548) and yet i still manage to make an impressive gain. If i just put in a little bit more effort, $1000 gain wouldn't be out of the question. So why not trade it when it's so easy? It's just too irresistible not to.

Now that this fast and furious correction is complete (in my view) as it pulls back to its 20 day MA. This is a healthy correction, and the Bitcoin price can now resume its upward path in a more "realistic" (for Bitcoin) pace after pulling back from its unsustainable parabolic rise.

It would be healthy that Bitcoin will trade sideways for a week or two (i can't expect the impatient Bitcoin market to do that for a few months. It's like asking a little kid to stand still for a few hours).

Next time when you see such a spike in Google Trends chart again (and the accompanied parabolic price rise in Bitcoin chart), it's time to get out and get back in after the price correction. You won't have to wait for long. I'm impatient, but Bitcoin market beats me in that respect. Not that i complain. The Google Trends chart could be used alongside with Bitcoin price chart to get the signal of a short term top.

On the other hand, if you haven't owned any Bitcoin, last 2 weeks were the worst time to get into Bitcoin (unless you day-trade it). Now, it's better to buy some after this correction if want to become a long term Bitcoineer. Arr!

Would there be more price volatility in the up coming scaling issue? Will have to wait and see. No market move in a straight line.




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