![[Question] In every Forex websites and YouTube videos all i see are plain candle charts. Why don’t people use ‘Ichimoku Clouds’, which provides more data points?](https://external-preview.redd.it/-k2qm4o7cPrytP8He65lgbDnRvgTzeAQJMOGwqvOrn4.jpg?width=108&crop=smart&auto=webp&s=93b8586a5d29ad575f570d4dedc72ec4100bf089 "[Question] In every Forex websites and YouTube videos all i see are plain candle charts. Why don’t people use ‘Ichimoku Clouds’, which provides more data points?")
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 | As the Fed begins their journey into a deflationary blizzard, they are beginning to break markets across the globe. As the World Reserve Currency, over 60% of all international trade is done in Dollars, and USDs are the largest Foreign Exchange (Forex) holdings by far for global central banks. Now all foreign currencies are crashing against the Dollar as the vicious feedback loops of Triffin’s Dilemma come home to roost. The Dollar Milkshake has begun. submitted by peruvian_bull to Superstonk [link] [comments] The Fed, knowingly or unknowingly, has walked into this trap- and now they find themselves caught underneath the Sword of Damocles, with no way out… Sword Of Damocles -------------------------- “The famed “sword of Damocles” dates back to an ancient moral parable popularized by the Roman philosopher Cicero in his 45 B.C. book “Tusculan Disputations.” Cicero’s version of the tale centers on Dionysius II, a tyrannical king who once ruled over the Sicilian city of Syracuse during the fourth and fifth centuries B.C. Though rich and powerful, Dionysius was supremely unhappy. His iron-fisted rule had made him many enemies, and he was tormented by fears of assassination—so much so that he slept in a bedchamber surrounded by a moat and only trusted his daughters to shave his beard with a razor. As Cicero tells it, the king’s dissatisfaction came to a head one day after a court flatterer named Damocles showered him with compliments and remarked how blissful his life must be. “Since this life delights you,” an annoyed Dionysius replied, “do you wish to taste it yourself and make a trial of my good fortune?” When Damocles agreed, Dionysius seated him on a golden couch and ordered a host of servants wait on him. He was treated to succulent cuts of meat and lavished with scented perfumes and ointments. Damocles couldn’t believe his luck, but just as he was starting to enjoy the life of a king, he noticed that Dionysius had also hung a razor-sharp sword from the ceiling. It was positioned over Damocles’ head, suspended only by a single strand of horsehair. From then on, the courtier’s fear for his life made it impossible for him to savor the opulence of the feast or enjoy the servants. After casting several nervous glances at the blade dangling above him, he asked to be excused, saying he no longer wished to be so fortunate.” —--------------- Damocles’ story is a cautionary tale of being careful of what you wish for- Those who strive for power often unknowingly create the very systems that lead to their own eventual downfall. The Sword is often used as a metaphor for a looming danger; a hidden trap that can obliterate those unaware of the great risk that hegemony brings. Heavy lies the head which wears the crown. There are several Swords of Damocles hanging over the world today, but the one least understood and least believed until now is Triffin’s Dilemma, which lays the bedrock for the Dollar Milkshake Theory. I’ve already written extensively about Triffin’s Dilemma around a year ago in Part 1.5 and Part 4.3 of my Dollar Endgame Series, but let’s recap again. Here’s a great summary- read both sides of the dilemma: Triffin's Dilemma Summarized (Seriously, stop here and go back and read Part 1.5 and Part 4.3 Do it!)Essentially, Triffin noted that there was a fundamental flaw in the system: by virtue of the fact that the United States is a World Reserve Currency holder, the global financial system has built in GLOBAL demand for Dollars. No other fiat currency has this. How is this demand remedied? With supply of course! The United States thus is forced to run current account deficits - meaning it must send more dollars out into the world than it receives on a net basis. This has several implications, which again, I already outlined- but I will list in summary format below:
Dollar Recycling Essentially, they print their own currency to buy Dollars. Wanting to earn interest on this massive cash hoard when it isn’t being used, they buy Treasuries and other US debt securities to get a yield. As their domestic economy grows, their need and dependence on the Dollar grows as well. Their Central Bank builds up larger and larger hoards of Treasuries and Dollars. The entire thesis is that during times of crisis, they can sell the Treasuries for USD, and use the USDs to buy back their own currency on the market- supporting its value and therefore defending the peg. This buying pressure on USDs and Treasuries confers a massive benefit to the United States- The Exorbitant Privilege This buildup of excess dollars ends up circulating overseas in banks, trade brokers, central banks, governments and companies. These overseas dollars are called the Eurodollar system- a 2016 research paper estimated the size to be around $13.8 Trillion USD. This system is not under official Federal Reserve jurisdiction so it is difficult to get accurate numbers on its size. https://preview.redd.it/92wcmhdb0uq91.png?width=691&format=png&auto=webp&s=20dbaf63f75ff6f2e255fff06e6f48c03170b11b This means the Dollar is always artificially stronger than it should be- and during financial calamity, the dollar is a safe haven as there are guaranteed bidders. All this dollar denominated debt paired with the global need for dollars in trade creates strong and persistent dollar demand. Demand that MUST be satisfied. This creates systemic risk on a worldwide scale- an unforeseen Sword of Damocles that hangs above the global financial system. I’ve been trying to foreshadow this in my Dollar Endgame Series. Triffin’s Dilemma is the basis for the Dollar Milkshake Theory posited by Brent Johnson. The Dollar MilkshakeMilkshake of Liquidity In 2021, Brent worked with RealVision to create a short summary of his thesis- the video can be found here. I should note that Brent has had this theory for years, dating back to 2018, when he first came on podcasts and interviews and laid out his theory (like this video, for example). Here’s the summary below: ----- “A giant milkshake of liquidity has been created by global central banks with the dollar as its key ingredient - but if the dollar moves higher this milkshake will be sucked into the US creating a vicious spiral that could quickly destabilize financial markets. The US dollar is the bedrock of the world's financial system. It greases the wheels of global commerce and exchange- the availability of dollars, cost of dollars, and the level of the dollar itself each can have an outsized impact on economies and investment opportunities. But more important than the absolute level or availability of dollars is the rate of change in the level of the dollar. If the level of the dollar moves too quickly and particularly if the level rises too fast then problems start popping up all over the place (foreign countries begin defaulting). Today however many people are convinced that both the role of the Dollar is diminishing and the level of the dollar will only decline. People think that the US is printing so many dollars that the world will be awash with the greenback causing the value of the dollar to fall. Now it's true that the US is printing a lot of dollars – but other countries are also printing their own currencies in similar amounts so in theory it should even out in terms of value. But the hidden issue is the difference in demand. Remember the global financial system is built on the US dollar which means even if they don't want them everybody still needs them and if you need something you don't really have much choice. (See DXY Index): DXY Index Although many countries like China are trying to reduce their reliance on dollar transactions this will be a very slow transition. In the meantime the risks of a currency or sovereign debt crisis continue to rise. But now countries like China and Japan need dollars to buy copper from Australia so the Chinese and the Japanese owe dollars and Australia is getting paid in dollars. Europe and Asia currently doing very limited amount of non-dollar transactions for oil so they still need dollars to buy oil from saudi and again dollars get hoovered up on both sides Asia and Europe need dollars to buy soybeans from Brazil. This pulls in yet more dollars - everybody needs dollars for trade invoices, central bank currency reserves and servicing massive cross-border dollar denominated debts of governments and corporations outside the USA. And the dollar-denominated debt is key- if they don't service their debts or walk away from their dollar debts their funding costs rise putting great financial pressure on their domestic economies. Not only that, it can lead to a credit contraction and a rapid tightening of dollar supply. The US is happy with the reliance on the greenback they own the settlement system which benefits the US banks who process all the dollars and act as gatekeepers to the Dollar system they police and control the access to the system which benefits the US military machine where defense spending is in excess of any other country so naturally the US benefits from the massive volumes of dollar usage. https://preview.redd.it/yq1f1anq0uq91.png?width=1140&format=png&auto=webp&s=27447e2acec884848a5c70ab3651820e487fc0f3 Other countries have naturally been grumbling about being held hostage to the situation but the choices are limited. What it does mean is that dollars need to be constantly sucked out of the USA because other countries all over the world need them to do business and of course the more people there are who need and want those dollars the more is the pressure on the price of dollars to go up. In fact, global demand is so high that the supply of dollars is just not enough to keep up, even with the US continually printing money. This is why we haven't seen consistently rising US inflation despite so many QE and stimulus programs since the global financial crisis in 2008. But, the real risk comes when other economies start to slow down or when the US starts to grow relative to the other economies. If there is relatively less economic activity elsewhere in the world then there are fewer dollars in global circulation for others to use in their daily business and of course if there are fewer in circulation then the price goes up as people chase that dwindling source of dollars. Which is terrible for countries that are slowing down because just when they are suffering economically they still need to pay for many goods in dollars and they still need to service their debts which of course are often in dollars too. So the vortex begins or as we like to say the dollar milkshake- As the level of the dollar rises the rest of the world needs to print more and more of its own currency to then convert to dollars to pay for goods and to service its dollar debt this means the dollar just keeps on rising in response many countries will be forced to devalue their own currencies so of course the dollar rises again and this puts a huge strain on the global system. (see the charts below:) JPY/USD GBP/USD EUUSD To make matters worse in this environment the US looks like an attractive safe haven so the US ends up sucking in the capital from the rest of the world-the dollar rises again. Pretty soon you have a full-scale sovereign bond and currency crisis. https://preview.redd.it/72nlain01uq91.png?width=1141&format=png&auto=webp&s=cbaa411acc88acb3849949d84a36624d75d6cfc4 We're now into that final napalm run that sees the dollar and dollar assets accelerate even higher and this completely undermines global markets. Central banks try to prevent disorderly moves, but the global markets are bigger and the momentum unstoppable once it takes hold. And that is the risk that very few people see coming but that everyone should have a hedge against - when the US sucks up the dollar milkshake, bad things are going to happen. Worst of all there's no alternatives- what are you going to use-- Chinese Yuan? Japanese Yen? the Euro?? Now, like it or not we're stuck with a dollar underpinning the global financial system.” —------------- Why is it playing out now, in real time?? It all leads back to a tweet I made in a thread on September 16th. Tweet Thread about the Yuan The Fed, rushing to avoid a financial crisis in March 2020, printed trillions. This spurred inflation, which they then swore to fight. Thus they began hiking interest rates on March 16th, and began Quantitative Tightening this summer. QE had stopped- No new dollars were flowing out into a system which has a constant demand for them. Worse yet, they were hiking completely blind- Although the Fed is very far behind the curve, (meaning they are hiking far too late to really combat inflation)- other countries are even farther behind! Japan has rates currently at 0.00- 0.25%, and the Eurozone is at 1.25%. These central banks have barely begun hiking, and some even swear to keep them at the zero-bound. By hiking domestic interest rates above foreign ones, the Fed is incentivizing what are called carry trades. Since there is a spread between the Yen and the Dollar in terms of interest rates, it thus is profitable for traders to borrow in Yen (shorting it essentially) and buy Dollars, which can earn 2.25% interest. The spread would be around 2%. DXY rises, and the Yen falls, in a vicious feedback loop. Thus capital flows out of Japan, and into the US. The US sucks up the Dollar Milkshake, draining global liquidity. As I’ve stated before, this has seriously dangerous implications for the global financial system. For those of you who don’t believe this could be foreseen, check out the ending paragraphs of Dollar Endgame Part 4.3 - “Economic Warfare and the End of Bretton Woods” published February 16, 2022: Triffin's Dilemma is the Final Nail What I’ve been attempting to do in my work is restate Triffins’ Dilemma, and by extension the Dollar Milkshake, in other terms- to come at the issue from different angles. Currently the Fed is not printing money. Which is thus causing havoc in global trade (seen in the currency markets) because not enough dollars are flowing out to satisfy demand. The Fed must therefore restart QE unless it wants to spur a collapse on a global scale. Remember, all these foreign countries NEED to buy, borrow and trade in a currency that THEY CANNOT PRINT! We do not have enough time here to go in depth on the Yen, Yuan, Pound or the Euro- all these currencies have different macro factors and trade factors which affect their currencies to a large degree. But the largest factor by FAR is Triffin’s Dilemma + the Dollar Milkshake, and their desperate need for dollars. That is why basically every fiat currency is collapsing versus the Dollar. The Fed, knowingly or not, is basically in charge of the global financial system. They may shout, “We raise rates in the US to fight inflation, global consequences be damned!!” - But that’s a hell of a lot more difficult to follow when large G7 countries are in the early stages of a full blown currency crisis. The most serious implication is that the Fed is responsible for supplying dollars to everyone. When they raise rates, they trigger a margin call on the entire world. They need to bail them out by supplying them with fresh dollars to stabilize their currencies. In other words, the Fed has to run the loosest and most accommodative monetary policy worldwide- they must keep rates as low as possible, and print as much as possible, in order to keep the global financial system running. If they don’t do that, sovereigns begin to blow up, like Japan did last week and like England did on Wednesday. And if the world’s financial system implodes, they must bail out not only the United States, but virtually every global central bank. This is the Sword of Damocles. The money needed for this would be well in the dozens of trillions. The Dollar Endgame Approaches… —------------------------------------------------------------- Q&A(Many of you have been messaging me with questions, rebuttals or comments. I’ll do my best to answer some of the more poignant ones here.)—-----Q: I’ve been reading your work, you keep saying the dollar is going to fall in value, and be inflated away. Now you’re switching sides and joining the dollar bull faction. Seems like you don’t know what you’re talking about! A: You’re mixing up my statements. When I discuss the dollar losing value, I am referring to it falling in ABSOLUTE value, against goods and services produced in the real economy. This is what is called inflation. I made this call in 2021, and so far, it has proven right as inflation has accelerated. The dollar gaining strength ONLY applies to foreign currency exchange markets (Forex)- remember, DXY, JPYUSD, and other currency pairs are RELATIVE indicators of value. Therefore, both JPY and USD can be falling in real terms (inflation) but if one is falling faster, then that one will lose value relative to the other. Also, Forex markets are correlated with, but not an exact match, for inflation. I attempted to foreshadow the entire dollar bull thesis in the conclusion of Part 1 of the Dollar Endgame, posted well over a year ago- Unraveling of the Currency Markets I did not give an estimate on when this would happen, or how long DXY would be whipsawed upwards, because I truly do not know. I do know that eventually the Fed will likely open up swap lines, flooding the Eurodollar market with fresh greenbacks and easing the dollar short squeeze. Then selling pressure will resume on the dollar. They would only likely do this when things get truly calamitous- and we are on our way towards getting there. The US bond market is currently in dire straits, which matches the prediction of spiking interest rates. The 2yr Treasury is at 4.1%, it was at 3.9% just a few days ago. Only a matter of time until the selloff gets worse. —------ Q: Foreign Central banks can find a way out. They can just use their reserves to buy back their own currency. Sure, they can try that. It’ll work for a while- but what happens once they run out of reserves, which basically always happens? I can’t think of a time in financial history that a country has been able to defend a currency peg against a sustained attack. Global Forex Reserves They’ll run out of bullets, like they always do, and basically the only option left will be to hike interest rates, to attract capital to flow back into their country. But how will they do that with global debt to GDP at 356%? If all these countries do that, they will cause a global depression on a scale never seen before. Britain, for example, has a bit over $100B of reserves. That provides maybe a few months of cover in the Forex markets until they’re done. Furthermore, you are ignoring another vicious feedback loop. When the foreign banks sell US Treasuries, this drives up yields in the US, which makes even more capital flow to the US! This weakens their currency even further. FX Feedback Loop To add insult to injury, this increases US Treasury borrowing costs, which means even if the Fed completely ignores the global economy imploding, the US will pay much more in interest. We will reach insolvency even faster than anyone believes. The 2yr Treasury bond is above 4%- with $31T of debt, that means when we refinance we will pay $1.24 Trillion in interest alone. Who's going to buy that debt? The only entity with a balance sheet large enough to absorb that is the Fed. Restarting QE in 3...2…1… —---- Q: I live in England. With the Pound collapsing, what can I do? What will happen from here? How will the governments respond? England, and Europe in general, is in serious trouble. You guys are currently facing a severe energy crisis stemming from Russia cutting off Nord Stream 1 in early September and now with Nord Stream 2 offline due to a mysterious leak, energy supplies will be even more tight. Not to mention, you have a pretty high debt to GDP at 95%. Britain is a net importer, and is still running government deficits of £15.8 billion (recorded in Q1 2022). Basically, you guys are the United States without your own large scale energy and defense sector, and without Empire status and a World Reserve Currency that you once had. The Pound will almost certainly continue falling against the Dollar. The Bank of England panicked on Wednesday in reaction to a $100M margin call on British pension funds, and now has begun buying long dated (10yr) gilts, or government bonds. They’re doing this as inflation is spiking there even worse than the US, and the nation faces a currency crisis as the Pound is nearing parity with the Dollar. BOE announces bond-buying scheme (9/28/22) I will not sugarcoat it, things will get rough. You need to hold cash, make sure your job, business, or investments are secure (ie you have cashflow) and hunker down. Eliminate any unnecessary purchases. If you can, buy USDs as they will likely continue to rise and will hold value better than your own currency. If Parliament goes through with more tax cuts, that will only make the fiscal situation worse and result in more borrowing, and thus more money printing in the end. —---- Q: What does this mean for Gamestop? For the domestic US economy? Gamestop will continue to operate as I am sure they have been- investing in growth and expanding their Web3 platform. Fiat is fundamentally broken. This much is clear- we need a new financial system not based on flawed 16th fractional banking principles or “trust me bro” financial intermediaries. My hope is that they are at the forefront of a new financial system which does not require centralized authorities or custodians- one where you truly own your assets, and debasement is impossible. I haven’t really written about GME extensively because it’s been covered so well by others, and I don’t feel I have that much to add. As for the US economy, we are still in a deep recession, no matter what the politicians say- and it will get worse. But our economic troubles, at least in the short term (6 months) will not be as severe as the rest of the world due to the aforementioned Dollar Milkshake. The debt crisis is still looming, midterms are approaching, and the government continues to deficit spend as if there’s no tomorrow. As the global monetary system unravels, yields will spike, the deleveraging will get worse, and our dollar will get stronger. The fundamental factors continue to deteriorate. I’ve covered the US enough so I'll leave it there. —------ Q: Did you know about the Dollar Milkshake Theory before recently? What did you think of it? Of course I knew about it, I’ve been following Brent Johnson since he appeared on RealVision and Macrovoices. He laid out the entire theory in 2018 in a long form interview here. I listened to it maybe a couple times, and at the time I thought he was right- I just didn’t know how right he was. Brent and I have followed each other and been chatting a little on Twitter- his handle is SantiagoAuFund, I highly recommend you give him a follow. Twitter Chat I’ve never met him in person, but from what I can see, his predictions are more accurate than almost anyone else in finance. Again, all credit to him- he truly understands the global monetary system on a fundamental level. I believed him when he said the dollar would rally- but the speed and strength of the rally has surprised me. I’ve heard him predict DXY could go to 150, mirroring the massive DXY squeeze post the 1970s stagflation. He could very easily be right- and the absolute chaos this would mean for global trade and finance are unfathomable. History of DXY —---------- Q: The Pound and Euro are falling just because of the energy crisis there. That's it! Why is the Yen falling then? How about the Yuan? Those countries are not currently undergoing an energy crisis. Let’s review the year to date performance of most fiat currencies vs the dollar: Japanese Yen: -20.31% Chinese Yuan: -10.79% South African Rand: -10.95% English Pound: -18.18% Euro: -14.01% Swiss Franc: -6.89% South Korean Won: -16.73% Indian Rupee: -8.60% Turkish Lira: -27.95% There are only a handful of currencies positive against the dollar, the most notable being the Russian Ruble and the Brazilian Real- two countries which have massive commodity resources and are strong exporters. In an inflationary environment, hard assets do best, so this is no surprise. —------ Q: What can the average person do to prepare? What are you doing? Obligatory this is NOT financial advice This is an extremely difficult question, as there are so many factors. You need to ask yourself, what is your financial situation like? How much disposable income do you have? What things could you cut back on? I can’t give you specific ideas without knowing your situation. Personally, I am building up savings and cutting down on expenses. I’m getting ready for a severe recession/depression in the US and trying to find ways to increase my income, maybe a side hustle or switching jobs. I am holding my GME and not selling- I still have some shares in Fidelity that I need to DRS (I know, sorry, I was procrastinating). For the next few months, I believe there will be accelerating deflation as interest rates spike and the debt cycle begins to unwind. But like I’ve stated before, this will lead us towards a second Great Depression very rapidly, and to avoid the deflationary blizzard the Fed will restart QE on a scale never seen before. QE Infinity. This will be the impetus for even worse inflation- 25%+ by this time next year. It’s hard to prepare for this, and easy to feel hopeless. It’s important to know that we have been through monetary crises before, and society did not devolve into a zombie apocalypse. You are not alone, and we will get through this together. It’s also important to note that we are holding the most lopsided investment opportunity of a generation. Any money you put in there can be grown by orders of magnitude. We are at the end of the Central Bankers game- and although it will be painful, we will rid the world of them, I believe, and build a new financial system based on blockchains which will disintermediate the institutions. They have everything to lose. —------ Q: I want to learn more, where can I do? What can I do to keep up to date with everything? You can start by reading books, listening to podcasts, and checking the news to stay abreast of developments. I have a book list linked at the end of the Dollar Endgame posts. I’ll be covering the central bank clown show on Twitter, you can follow me there if you like. I’ll also include links to some of my favorite macro people below:
—------------------- Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. |
 | I will be covering a lot of topics in this post in no particular order. It is meant as a follow-up/sequel to my previous post where I discussed the importance of understanding the Market Cycle and Trend Analysis. If your primary objective with cryptocurrency is to make money, then continue reading. If you are here for the technology or too busy to actively manage positions, then do your regular DCA and close Reddit. submitted by Cranky_Crypto to CryptoCurrency [link] [comments] TLDR: Cryptocurrency has become another speculation vehicle for institutions around the world. This is why it is more important than ever to learn how to read a price chart. Yes, most of Technical Analysis (TA) is hindsight 20/20. The real value in studying TA is learning how to identify signals/patterns in real-time. This way you can react in the present. You won't have anywhere near 75% accuracy, but you will most certainly avoid blowing up your account. That's a win. Your financial decisions will be grounded in reason. That is far from gambling and, therefore, also a win. Why should I listen to you? Some of the recent 'Analysis' posts in this sub are discussing: 1) Hypothetical gains if certain coins return to ATH 2) Why the weekly RSI being at all-time lows means it is a good time to buy 3) Creating an algo to find coins with 20x potential 4) Abnormal volume signaling a bottom is in (when in fact it was just people exploiting no-fee trading on Binance) No offence to any of those authors, but investing/trading in the markets is not that oversimplified. It involves much more study, analysis, understanding, and experience. That means learning to think for yourself and not following some social media furu/influencer who makes decisions for you. Everybody needs to take responsibility for their own financial outcomes. I learned this the hard way and hope that others avoid making the same mistakes I did in the past. I come from the school of thought that not all Technical Analysis is created equally. The most important concepts are related to price action, market psychology, and supply/demand. Everything else is open to interpretation and a matter of opinion. Below is a Canadian income tax stock slip for one of my trading accounts. It shows that I cycled nearly 1 million shares with a dollar value of $55m. Am I a whale? Certainly not. Do I put my money where my mouth is? I try my best to. T5008 Statement of Securities Transactions Institutions Move Markets Whether you like it or not, Crypto is being actively traded by institutions whose sole purpose is to extract money from the markets. That means firms, hedge funds, prop desks, market makers, and algos from all around the world are hitting the bid and ask 24 hours a day. Why does that matter? Well, because Bitcoin is viewed as just another tradable instrument at the risky end of the spectrum (high beta). Speculators are making money from price movements in both directions. And they are employing the same techniques used to trade stocks, forex, and commodities for the last century. Here are some recent events which demonstrate how institutions are driving moves in both Stocks and Crypto. $SPY - Technical patterns with fundamental narrative A. Price breached over Feb double top for the first higher-high of 2022 B. Pullback pattern failure: stops taken out overnight on April 6 gap (trap!) C. May 4/5 FOMC FOMO Fakeout: Market rallied into Close then gapped down next morning. Fooled many to go long with a false sense of security (institutions dumped onto retail) D. Afternoon of June 9: Market sells off before next morning's CPI print. 'Smart money' was getting out after technical support broke (8-day consolidation base) E. Inflation comes in hot at 8.6% and leads to multi-day sell-off, complete with professional gaps $BTC - Mirroring stocks above via technical/fundamental drivers Learn How to Ride the Tide with the Whales 'Whales' profit from buying low and selling high (or shorting high and covering lower). It helps to view the market through the same lens of the actors who drive it, no? Most people who believe TA is 'astrology for men' have never traded a day in their life. They liken trading to gambling: random bets with random outcomes. So explain to me how firms on Wall Street have been in business for decades. If you believe that the billions of dollars that flow in/out of global markets daily are driven by 'hunches', then I have a bridge to sell you. To think that institutions blindly decide when to initiate their buy/sell programs is ridiculous. Wall Street prefers that retail brush off TA as witchcraft in order to fleece Main Street in both directions. That's how they are profitable year after year, in all market environments. So why does it matter that institutions use TA when deciding to trade/invest in a particular asset? Because that herd mentality is what causes markets to enter uptrends and downtrends. When the big players are in agreement on direction, that leads to fluidity. Clean price action forms patterns. Patterns are predictable. And the market loves consistency. This concept applies to Bitcoin, wheat, stocks, bonds, gold, alt coins, pork bellies--anything that is exchanged on an open market can be charted. Where there's a trend, there's a Market Cycle; the Psychology Cheat Sheet is indeed universal. Emotional stages of a Market Cycle Somebody once said that candlesticks and volume are the footprints of money. The bigger the volume, the larger the shoes. If you plan to involve yourself in a market, it only makes sense to understand what the shepherds--who guide the flock--are doing. And I don't mean Ecuador buying 80 Bitcoin the other day. That's less volume than the prior 1-minute candle on Binance!. I mean the institutional money that created the bottom wick at $17.6k a few weeks ago. The same institutions who defended price at $18.6k to put the brakes on the intermediate downtrend. Fundamentals are the Real Fugazi How many times have you turned on CNBC to hear talking heads opine about which assets to buy vs. sell. They are either late to the party or flat out wrong in their predictions. Putting buy ratings at the top of market cycles, screaming discount during sell-offs, and finally downgrading at the bottom. It's comical but should be criminal. And you wonder why retail traders are notorious for buying high and selling low. Here's an example of how institutions sold Tesla's last earnings despite great numbers. Following the failed breakout in mid-March, that left a lot of trapped longs above $1100. Many were underwater for a couple of weeks hoping for a bounce. When price returned to their break-even, they sold. It's been downtrending ever since. $TSLA April 21, 2022 Earnings - 'Good' fundamentals used to trap Bulls into becoming exit liquidity Any news, upgrade, downgrade, or macro event that is worth acting upon by institutions will reflect themselves in the charts. Bullish news? Show me the big green candlestick with above average volume. Bearish news? Then the market better be selling. If the piece of fundamental information didn't drive market participants to buy/sell, then it is utterly meaningless. At the end of the day, ticks on the tape are what matters. This is why I tune out forecasts, models, predictions, ratings, and news in general. Focus on the chart and cut out the middleman. The candlesticks will tell you how the market is reacting, not some guest analyst on a financial podcast. Just for kicks, here's another one where Bill Ackman (CEO of hedge fund Pershing Square) thought that he could single-handedly halt the downtrend on $NFLX. After dropping 50% from ATH back in January, $350 seemed like a good value, right? It's down another 50% since then. This from a company that was supposed to be a Blue Chip! Ackman bets big on $NFLX during a downtrend and loses 36% in just 3 months. Took many retail traders down on the sinking ship. Price Action is King All technical indicators use past price and volume as their inputs. There are countless formulas derived from these two objective measures. Thus, there exists an infinite number of combinations and permutations of indicators, each with a dizzying amount of settings. This is why TA can be subjective and often lagging. Just because some oscillator has a value of x, or an index is currently at y, it means nothing unless the market acts upon it. A sloping trendline can be drawn numerous ways; Bollinger bands and MACD have many settings. Which moving averages to use? The Ichimoku Cloud covers the chart to the point where its unreadable. Spaghetti lines. Halving dates. Puell Multiples, S2F models. Dominance percentages, Pi-Cycle Bottom Indicators. Do you see where I'm going with this? These indicators are a function of price and volume, not vice versa. No wonder Technical Analysis has gotten such a bad wrap. There is no such thing as a Holy Grail despite how many people claim to have one for sale. Let's discuss the objective aspects of a chart. Price is registered when real buying/selling occurred. Fact. Volume is how many units were exchanged. Fact. When displayed on a chart in the form of candlesticks, they paint the picture of supply and demand. These two forces are what drives a market. Fact. Again, it makes sense to cut out the middleman and focus on price action: what the market has done and is doing. Trend Analysis Refresher and Recap So institutions drive the market and their actions can be seen by looking at prior and current candlesticks. Still with me? Good. Go to my last post for a crash course on pivots and trend structure. Everything beyond here won't make sense without a basic understanding of the Market Cycle. ---[INTERMISSION]--- At the end of each impulse/retracement leg there lies an area where price reversed. That inflection point is called a pivot. It takes a lot of buying/selling to halt and reverse price like that. This means institutional money. What do you think happens when price comes back to that area again? Many things are possible, including: 1. People who recently bought/sold are back at break-even 2. Traders get a second chance to add at the same price 3. Bagholders can minimize their loss after being underwater on a wrong bet 4. Price is deemed to be a good value after retracing a certain percentage 5. Anyone who exited too early and missed out are able to FOMO back in 6. Etc. etc. There are entire book chapters that cover the emotions and psychology behind pivots and trends. I won't get into it here, but it explains the why: the reason that active trends tend to continue and why support/resistance areas are often respected. It's like the market has a collective memory when a prior price is revisited. Professional traders put their faith into these concepts. The more who act, the more likely these patterns come to fruition. Uptrend: Forces of Demand are greater than forces of Supply Downtrend: Forces of Supply are greater than forces of Demand Sideways: At the uppelower bounds of a range, forces of Supply equal forces of Demand and causes price to retrace Ever notice how the absolute top/bottom is only realized in hindsight? It is an inflection point which ended up being the apex of a trend. This is why it is nearly impossible to buy at the very lows and sell at the very highs. The trend is your friend: please don't fight it. In the last post I stated that retail has no problem buying during a Stage 2 uptrend. The issue is that they fail to sell during a Stage 4 downtrend. Believe me, the HODL mentality predates Crypto by centuries: Bitcoin just popularized it into a meme. Here are some graphics I dug up which demonstrate this phenomenon in the context of a Market Cycle. The Market Cycle - Playing the Stages incorrectly due to lack of understanding Uptrends and downtrends exist because institutions are buying during Stage 2 and selling during Stage 4 (correct areas). The active trend continues until they stop doing this. Remember: institutions move markets. Herd mentality. Our little buy/sell orders have no impact on the price. Pattern Based Trading By now you probably realized that I am a believer of price action and trends. This simplifies my actions down to 3 general strategies: 1. During a Stage 2: buy the Pullbacks and Breakouts 2. During a Stage 4: sell the Rallies and Breakdowns 3. During Stage 1/3: wait patiently for the range to be broken and get onboard the ensuing trend Do these patterns work 100% of the time? No! When they do work is the potential profit greater than the amount risked? Yes! These two sentences are the key to successful trading. Let's leave that topic for another day. Each pattern/setup has many requirements which improve their reliability. For educational purposes, here are a few examples which are relevant. By studying dead charts, you know what to look for and can better identify the price action in real-time. The Breakout Failure - Typically signals the end of a Stage 3 Distribution Phase and Beginning of Stage 4 Downtrend. Also known as the Wyckoff Upthrust or Wyckoff Spring. What: Price breaches a prior high and then fails Why: Sucks in longs and creates trapped traders. This fuels selling momentum on the way down; panic leading to fear, leading to more panic and fear. Herd mentality. Textbook Breakout Failure Bitcoin False Breakout - Week of November 8, 2021. Origin of current Stage 4 downtrend S&P 500 False Breakout - January 4th, 2022. Origin of current Stage 4 downtrend The Consolidation Breakout/Breakdown - Typically a continuation pattern in an active Stage 2 or Stage 4 What: Price consolidates sideways after a directional move. Once flooceiling of the range is breached, trend resumes Why: Thin volume as institutions are not interested in dead action. Once stops are taken out at the bottom/top of base, then money pours in/out to ignite the move Textbook Base Breakout Bitcoin Base Breakout 5-min Chart - July 7, 2022 Bitcoin Base Breakdown 60-min Chart - June 17, 2022 When Will Crypto Bottom If you made it this far then I still have your attention. You are probably wondering when I think $BTC will bottom. The answer to that is: I don't know and won't pretend to know. My job is to react and not predict. To wait for confirmation by analyzing new information that the market provides after each candlestick dies and a new one is born. That being said, price action will give clues as to when a bottom has been put in. I believe that it will occur either one of two ways: #1. Long drawn out Stage 1 Accumulation phase like we saw in 2019 Textbook Transitional A - Stage 1 into Stage 2 (numbers show potential entry points) 2019 Bottom - With potential entries at 1, 2, 3 #2. Sudden Climactic Reversal like we saw in March 2020 (alongside Stocks) Vertical Doomsday drop which culminates in capitulation volume. Makes a higher low (HL) and eventually leads to a new uptrend (HH and HL). Stage 4 directly into a Stage 2; enter on any pullback. Closing Thoughts Thank you for reading this far. I hope you enjoyed the post. Crypto is a hobby for me; something to follow when markets are closed on weekends. I have nothing to sell--just trying to share some info/experience with others who are risking their capital to earn a return. The rest is up to you. Everyone looks like a genius during a Bull Market. Only when the tide goes out do you discover who's been swimming naked. -Warren Buffet Additional Reading Many have been asking for TA book recommendations. Here are a few that cover all the concepts from the Classical theories (no promo): -Technical Analysis of the Financial Markets, John J. Murphy -Trading Tools and Tactics: Reading the Mind of the Market, Greg Capra -The Art and Science of Technical Analysis, Adam Grimes Disclaimer: Not financial advice. Do your own due diligence. Only invest with money you can afford to lose. Sold majority $ETH 3863 and $ADA $2.68 at end of 2021 (Stage 3 top). $BTC $39K final exit April 24, 2022 before base breakdown. Crypto account is 100% cash since May. |
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