Never predict, always react.
January 10, 2022
*Note: this post contains references to the liquidity gap system designed by @Trader_xB
In every issue of this blog since December 6th, 2021 I’ve made it clear that BTC’s range low would likely need to be taken before the bull market returns in full force. While the latter is yet to be determined, the former has finally come true. As the fear & greed needle moves further into the red and Crypto Twitter panics, I can’t help but think back to late June when it seemed like everyone was calling for 25k.
Narratives in this space are amusing. Anyone who understands the basics of trading knows that the vast majority of retail investors and traders typically end up providing liquidity for institutions. That’s a nice way of saying they usually get rekt. Why is that? Well, you’ve heard this before: because they buy greed and sell fear. In technical terms, you might say that they buy resistance and sell support. It’s going up? I should buy more. It’s been going down? I should sell, which is of course the exact opposite of a winning mentality. I understand that this is a massive oversimplification, and it’s also in the first 30 seconds of practically every goddamn trading TED talk ever given, but I’m only using it to make the point that retail narratives are inherently paradoxical concepts. The market is a zero sum game. When retail capitulates and starts puking their positions, they’re generating a fuck ton of liquidity for instutional longs. If retail’s general plan is to buy some arbitrary support level, then they’re essentially incentivizing institutions to drive price right through and to use their stop losses (or liquidations) as sell side liquidity. This is why the narrative levels that everyone is calling for either get front-run or smashed through, which is exactly what’s happened on repeat all the way down from all-time high.
New all-time high! Double toppers must be in disbelief!
Sweep at 62k, last chance before 100k!
58k is high time frame support. Buy the dip!
OK, 54k incoming…I mean 48k…
All good, tons of liquidity taken on that wick to 42k…
We’re back at 52k, alts recovering, WGMI! New paradigm incoming!!!!
Needless to say, an edge in the market comes from doing the exact opposite of what the majority of market participants are doing. You know what most retail traders are not doing? Managing risk, journaling trades, measuring emotional state, using multi-time frame analysis, backtesting, forward testing, paper trading, and following a system. Your ultimate trading goal should be to react to what the markets are telling you rather than feel like you need to predict the future. The former is trading, the latter is gambling.
Do professional poker players develop consistent winnings by gut feeling? Of course not. They have an internalized set of rules that allow them to navigate uncertainty. For example, When I’m first to act, I will only raise or fold, never check. In other words, pro poker players develop systems.
None of what I’m saying here is original. Any successful trader knows that a rule-base approach to the markets is absolutely critical, and @Trader_xB repeatedly stressed the importance of these things over and over again. He developed the LG system after gathering an insane amount of historical trading data and obsessing over LGs, EQs, OCs, etc.
The only thing that should matter to you right now is what your system is telling you. So, what is our system telling us? Let’s have a look.
On the daily BTC chart, we’ve finally arrived at the range low and swept the external range target. An LGR at the marked level (42,430 on the Binance USDT chart) would signal to me that the liquidity gap at 45.5k left by the recent impulsive down move is going to get filled. This would coincide nicely with a reclaim of the range low and S/R level that is currently in the process of being flipped.
Good setups that fail are great setups in the opposite direction, so this is what I would need to see to get long with a target of 45.5k.
If we get there, it’s a fantastic short setup either back to the range low or lower lows, and this is perfectly in line with the weekly chart’s current target of 39k
Ethereum’s daily and weekly are identical, and I see no need for redundancy.
I’ll conclude by saying that with 4 losers in a row and no winners since last year, I’ve had a negative PnL this week, and that’s totally fine. At my current win rate over the course of 500 simulated trades, I’m practically guaranteed a 14 trade losing streak at some point. My account size would also quadruple. Might as well take 10 more and get it out of the way.
Trading is a hard way to make an easy living.
