Understanding Market Updates
You must be wondering about our warnings at times about reducing exposure and closing positions at breakeven or small profit / loss. You may have questions about why and how we decide to issue such warnings.
Today we are going to discuss “The Behind Scenes” process on why and how we define “Safe Periods” vs “Risky Periods”
Trend Following
At Profitfarmers, we are essentially Trend Traders. The reason for this is that following trends is quite simply the best statistical starting point in terms of nudging the trading odds in your favour.
For those of you, who are new, let me define what trend trading is all about. Let's have a look at the following BTCUSDT chart. Don't worry even if you do not know how to read the charts, you will still be able to understand the concept:
Now this seems pretty straight forward and for most part it is. This logic works well on bigger coins like Bitcoin, Ethereum & big volume coins like SOL.
However, it may or may not work well with smaller Alt Coins which are trading on the bottom in a small range for most part with very low volume.
Such coins can move violently on both sides and move up and down without respecting the basic rules of trend trading. They may breakout from a certain price range and may continue the trend and keep going up or may abruptly break down and go back below its initial breakout price. In general we avoid such coins all together based on a variety of criteria.
During Strongly bullish market, Alt coins generally work well and give very favorable entries and trend continuations. So during such markets, we broaden our criteria in order to get more exposure to the markets. Let's put it this way, it is generally safe to enter secondary Alt coins during strong marketwide up trends.
How do we define when it is safe and when it is risky to trade?
We use 108 Data points to come to the conclusion about general market conditions. Every single day our systems & Analysts track 9 different Assets & 18 different variables per asset to come to a general conclusion about broader market conditions. Let's call it a weather report.
We analyze the following 9 Assets across 18 variables:
We analyze the above assets every single day across 3 different timeframes to form a general view about the Macro Market conditions. I am sure you are already familiar with BTCUSD, ETHUSD & ETHBTC. Let me quickly explain other assets:
BTC Dominance
Bitcoin’s percentage share vs all other coins combined for Total Market Cap of the entire Market. If Bitcoin Dominance is surging, there is a good chance, Altcoins are losing bigtime in value. Similarly a drop in Bitcoin Dominance signals gains for Alt coins.
TOTAL
A gauge of value that tracks Total Market Capitalization of all major coins recognised by platforms like CoinMarketCap. To put it simply, Total Market Cap is derived from all coins in circulation multiplied by current market price. This one single chart can tell you a lot about overall Market conditions and what's likely to come.
TOTAL II
Combined Market Value of All Assets other than Bitcoin. This chart tells us how the broader market is behaving excluding bitcoin.
TOTAL III
Combined Market Value of All Assets other than Bitcoin & Ethereum. Basically everything in the market other than Bitcoin & Ethereum. It's a good barometer to watch the entire ALTCoin market trend in one single chart.
MIDPERP
An Index of Mid Cap Cryptocurrencies. This is a highly liquid index and is traded at FTX Exchange. Pretty good barometer to gauge what's happening and what's likely to come for Mid Size Cryptocurrencies.
SHITPERP
An Index of Small Cap Cryptocurrencies. Again this is also a very liquid index and is traded at FTX Exchange. This one tells us what's happening with small cap shit coins and what's likely to come.
We do not view these assets individually and instead we have created different matrices and variables to combine their data & come to the following conclusions:
Market is likely to fall
Market is likely to strongly trend on the up side
Market will be mostly slow & sideways with chances to drop
Market is directionless with no clear momentum
Market is about to Bottom & Up Swing will begin
Market is about to Breakout & big moves are coming
Market is topping out & its time to sell
Market is in the middle of nowhere & it can go either way
Market is entering a strong bearish zone
In general we can keep up with the pace of the markets and adjust and adapt based on the market conditions. We get markets right 8 out of 10 times and therefore our win rate is consistently above 70-80% based on previous results so far.
However, there are times when market conditions change abruptly on account of some unexpected events, for example:
Covid 19
New Strain of Covid
China banning Bitcoin
SEC prosecuting Ripple
Now such events cannot be predicted in advance and reaction to such events always results in abrupt and random price action. Prices can behave irrationally after such news and events.
When we detect such trend changes and seismic shifts. We issue warnings to reduce exposure and book profits on the next bounce or relief rallies.
1st December 2021 Market Update as an example
We have a totally mixed picture at the moment with Bitcoin looking weaker if it can not break 65000 soon. Ethereum looks the strongest at the moment with chances of breaking an All Time High soon. At the same time, MidCaps look the weakest & looks like if they do not find good momentum soon, they will literally die. On the other side small Cap ALT Coins want to pump hard but are facing stiff Triple Top Resistance. Too many conflicting signals means we try to stay away from the markets until the dust settles.
What's likely to happen in December?
Bitcoin 63350 is a strong strong resistance. Resistance means, if price gets there, we will see a lot of selling. Only if we can break that and spend few days above it, we can hope for an eventual breakout above 69000.
Ethereum 4904 - 5067 is the next resistance. Only once we break and close above 5067 for 3 days, we can expect 7822 & 9614 for Ethereum next. If price can not break this zone, we will come down back to 4000 levels.
Small Cap Shitcoins are stuck in a small range with 10500 now acting as a strong Resistance. Until we clear this, it's going to be sideways, choppy, downwards and messy price action for Small Cap Shitcoins. There will be some exceptions and some coins may still counter the broader weaker trend.
MID Caps are the worst performer at the moment in the current cycle. ETH is trading around All Time Highs, Bitcoin also tested its All time high recently. Small Cap Shit Coins also touched their All Time High last week, but Mid Caps could barely manage to get to a local resistance at 4536 and got rejected 3 times so far. The All time High is around 7500 and almost 100% away from current levels. For Now Midcaps managed to hold Local Trend Line Support. However, they are the weakest of the lot & may be signalling a Top is near if we do not get some momentum & breakout above 4536 in next few weeks.
Overall broadly speaking Ethereum wants to retest the High and will try to break the High. Bitcoin may pump above 60000 but may want to hold below 64000 for now and may dump further if we don't get momentum above 64000.
Small Cap Shit Coins will try to pump again but will be stopped around 10500 Level if the momentum weakens, at that stage we may want to Exit all Shit Coin positions. We may always re enter once that breaks out clearly.
Similarly Mid Caps is a mixed bag with the trend being in the middle of nowhere which indicates choppy, sideways, slow price action across the board.
In conclusion, we will buy ETH on breakout, we will avoid Bitcoin (other than scalping pumps) until we break 69000 clearly. We will play small caps with Caution and exit if they can't pump. We will stay away from Mid Caps until we see a clear Trend Change & Breakout.
This analysis is relevant only for Mid Term Swing & Long Term Investing Strategies. Short Term Strategies are unaffected & you can continue to trade them as normal.
If MidCaps Trend Changes, if ShitPerp breaks 10500 with conviction, if Bitcoin breaks 69000, well then we are in for a party again. Until such time, let's trade with caution.
End of Market Update
How could you take action based on this?
Reallocate base holdings
We now know that Bitcoin is weak and Eth is struggling. We’ve also had news of Omicron which could stall market growth temporarily.
Higher risk = Move all funds to ETH and aim to ride that trend
Medium risk = Move funds towards ETH and USDT split
Lower risk = Maintain core funds in USDT to passively stay out of all markets
Use the charts and information around support and resistance levels to make these trades more precisely.
Adjust open trades and pending signals
Markets are generally looking weaker after the omicron news and we can see some indexes hitting resistance levels. On the other hand we have seen a strong trend emerging amongst Metaverse coins that is likely to continue in the medium term.
Higher risk = keep all open trades and make no adjustments
Medium risk = Exit majority of trades at break even or small profits when the relief pumps come in. Keep metaverse related trades, especially those on medium term and long term swing strategies, due to the potential trend continuation. Accept that these could hit stop loss if the whole market tumbles.
Lower risk = Go flat and don't trade until we get more data. Protecting your account is never a bad thing as we will always find good moments to trade!
Again we can use the charts to find resistance zones to exit our trades at or simply adjust our targets down to break even or smaller profits.
As this report does not affect short time frame trades eg the CM strategies, Higher Risk Futures etc we can continue to play those selectively as we see fit during the day.
Conclusion
As you can see we are covering the Markets from a 360 degree perspective & in general we will be able to catch most major trends. We will be winning more often than not. However during abrupt trend changes on account of Black Swan Events, unexpected news may result in stop losses being triggered.
Overall we try to keep things simple so some of our updates may be rather short and sweet but you can always refer to this guide and check out the charts we have listed for yourself to get a wider perspective. Try not to think in absolutes of all in or all out, but do not be afraid to just go flat and stay out of trades any time there is a word of caution in the air. Missing some trades is far less worse than losing some capital. We cannot stress this enough.
If you trade manually or watch charts during the day you can opt to use a 1000 Seconds Timeout if you are using Stop Loss in order to avoid wicks. You can find this in the advanced options in the manual trading terminal. Sometimes the price may get to your stop loss for less than a few minutes and the price may reverse and pump back towards target. By default the system uses a hard stop-loss to prevent unexpected losses. To get around this you can set the stop loss to be lower than default and then edit it manually as you see fit.
Final Words, Trading & Investing is a game of survival. We need to survive first in order to consistently grow the capital. In order to survive, we need to deploy prudent risk management practices. Also we need to maximize the gains during safe periods when the market is strongly trending and safeguard the capital by reducing exposure during choppy periods. This Market will continue to pump for the next few years so we will have plenty of opportunities to grow the capital.