Why going against conventional crowd wisdom might be your best bet at winning the market.
There are a ton of investment wisdom out there. Invest only what you can lose. Dollar-cost average. Stay out of the bear market.
While these are sound defensive tactics and I abide by them, I am suggesting something else that is more active, more aggressive, and also riskier, which is to go against the norm.
This means buying when everyone is selling, and selling when everyone is buying. I have to mention that this applies to specific market conditions and is more applicable for short-term trades, but using this concept, it also means that “long-term” investors who are hoping for a market reversal should expect further disappointment.
That is to say, we can expect further downsides to come in this bear market, especially when throngs of people are saying that we have found a bottom and prices are reversing, only a week or two after it has plummeted.
Down And Down It Goes…
… Down into the rabbit hole… Well, cryptocurrency is a rabbit hole, but I digresss. We have all witnessed the market onslaught by now where the prior support levels of $6,500, $6,200, $5,600, and $4,600 are smashed through freely. Wait, what support levels?
It was only September and October when Bitcoin hovered around $6,500 and everyone thought that the market has stabilised. Currently, the market seems to have found a bottom support floor for Bitcoin at around $3,600 but is that the “true bottom”? Could it go any lower?
Bitcoin can go as low as it wants and recover when it wants because the market is manipulated by the whales, whoever they may be. At these price levels, it is more than likely that whales can cause big, volatile price movements.
And if you look at the other side of the coin, there are many others who have either lost money or are in losing positions. These are the ones who have entered the market late, or whom failed to take profits.
In a zero-sum game, the profiteers gain at the expense of others, which furthers explains why you should go against the crowd rather than join them, most of the times at least. Going against the crowd always sounds simple until you are tested on your guts and discipline to actually do it.
Market Manipulation
I only picked up Technical Analysis (TA) this year but since then, I have not looked back. TAs are a reflection of the past price actions. You see a particular price movement and pattern, and you make a guess of the next price movement.
Of course, it is a little more complicated than that, and there is some form of confirmation bias at work; all traders use similar support-resistance levels, which is why it works. You can also argue that all the price movements happen by random or due to the market’s reactive behaviour to news, but my point is: some of these price actions are triggered by manipulators, pump-and-dump group, or whales.
Although I have accurately pointed out the support regions of $5,800, $4,600, and now, $3,600 previously (See my article, The Capitulation Of The Crypto Market In 2018), the truth is, I could not say with absolute certainty that the market will hit these regions. It was more of a probabilistic guess. At such low liquidity levels, if the whales want to obliterate these support or resistance levels, they can.
To maximise their profits, this manipulation has to be timed. That is when we consider the next factor.
Crowd Contagion
One of the reason why TA might be effective is because people respond to price changes in a similar way. Whether it is following where the money goes, or buying the rumour and selling the news, or being susceptible to cognitive biases, the way people react to price movements in the market has been consistent across times.
This is also why the media plays a critical role in influencing the markets. The media frames the way people and investors think, which means that they can manipulate the market indirectly. Good news or bad news, it moves the market, and the scary thing about people responding in a similar manner is that the blind leads the blind.
Amazon has two new blockchain-related products? CoinBase launches new OTC crypto trading for institutional investors? Nasdaq to launch bitcoin futures?
It should come as no surprise when the crypto market subsequently recovers by 10%, and we should be expecting more positive price spurts with all these positive sentiments. Surely, we can profit from these upside spikes but the more likely outcome of blindly following the news is being wiped out by the whales in one clean sweep.
Keeping the manipulation in mind, plus the fact that most of the crowd are merely following the news or other people, it thus makes sense to put your bets against the majority.
The End Of The Bear Market?
I guess the bigger question here is whether we have seen the lowest we can for Bitcoin, and will we only see upwards price actions from here? While the $3,600 mark has now become a key support level, the $4,600 mark will be the next resistance level.
The prompt arrival of positive news sentiments and a seemingly quick market recovery is not a good sign for the long-term because when more people are sucked into these long positions, a quick short opportunity arises for the whales.
So if prices spike upwards, does it mean that it will get brought down quickly? If prices dip, does the market then buy in? When these two happens concurrently, does this mean that the market will go nowhere since every potential upwards spike will be met with a short, and every dip will be met with longs?
The market will rise, when no one expects it. When that happens, the whales will have a hand in it.
The current news, or should I say noise, clearly hints at institutions making strategic entries. That is a good sign. However, the timing of these announcements may also be part of their strategy. So, beware the media.
If there is anything to take away from this article, please do not take it as actionable trading advice. You do not go all out without a risk management strategy in place. What is your risk capital? What risk-reward ratios do you trade at? What stop-loss and take-profit levels are in place?
Instead, acknowledge and embrace manipulation.
- Learn how to spot it; learn technical analysis.
- Read the signals from the market; keep charting.
- Action, and then, maybe pray.
And try not to follow the crowd blindly.
For investors looking at longer term entries, any price now is a good price, and if you have been dollar-cost averaging your way down, why would you be doing anything differently? What was your investment goal and strategy when you bought your first cryptocurrency?
We have not found the bottom of the crypto market but I hope I am wrong. Regardless, I am clear of my strategy and have had long-term positions since the start of this mania. Good luck.
I write about cryptocurrencies and blockchain, and have written a book on cryptocurrency investing, Rolling In Crypto. Follow me for more of such articles or sign up for my FREE bimonthly newsletter if you are interested in the market outlooks. Thank you!