Adrian Reid uses Bitcoin charts to show why staying invested through crypto cycles is brutal. Bull runs are fast but followed by sharp corrections and long flat periods. He recommends entering only when momentum is clear and exiting quickly on daily-close signals to avoid 50%+ drops.
So the first thing here is, this is a chart of Bitcoin over the last several years. First thing to notice is that the bull markets are very fast and sharp. They don't last that long, but they, they are exponentially that and the market really skyrockets. But after the bull market is finished, there's typically a very sharp correction and a long period of nothing, which is very painful if you've got the wrong style of system. And then all of a sudden there's a new bull market and it rockets up and then the same thing again, more pain. So you're seeing this cycle play out three times on this chart alone. And so I think the first thing is my preference is not to be always in the market. You know, if I had.
The, let's say, the stomach to sit through the 90% drawdowns, then fine, always in the market might work, but you know, that's just not me. I'm just not interested. So I want a system that will get me in when the market is moving, but then be, be very quick to stand aside. So think very carefully about the market regimes that you trade in and when you stand aside. And one of the mistakes that many, many traders make in this space right now, again because there's so many new traders coming into the market, is they're keen to trade all the time. Whereas my approach is patience is what makes you the money. You got to wait for the right conditions, you got to wait for the signal. And so in my system development, what I'm doing is filtering out a lot of the market phases that I'm just not interested in sitting through. So that's the first observation. Let's go to the second slide. So the next consideration here is the declines are really sharp and sudden. So from an all time high you can go straight into a 50% decline that happens over the space of just a couple of weeks or less. So the key here is you want your systems to be fairly nimble. Okay? So we're not going to use ultra wide trailing stops and trend follow like you might in stocks and, and get really great returns in stocks because it just won't work here. You've got to get out more quickly. So yes, trend following works, momentum works, but you need to have some cleverness in the way you set you exit because the market does turn around pretty sharply and you've got to be careful of the, the whip stores when the market's in a consolidation range. So, so a lot of people will call the bottom, a lot of people will say oh, it's over, we're making money again. But really it's just a big rally in a sideways market. So it's easy to get tripped up by that. This is some observations or just some illustrations of the pump and dump style move. And I think everyone knows what the term pump and dump means, but in this space it's phenomenal how often it happens. And so out of nowhere, you know, people can start pushing a token and it rallies. You see here on the left an example of a 500 odd percent rally. And on the right is almost similarly big one and the skyrockets and then dis and then disappears to nothing. Now if you get on these early enough and you have a profit take in the market, then you can actually make a huge amount of money very, very quickly with this style of move. So you don't need to be fearful of the pump and dump, you just need to be nimble. And so, you know, I'll buy on a lot of the systems are entering on breakouts and I know you love breakouts and but you know, if you have a profit target in the market to get you out and be willing to get out before it really looks like the high is in, then you can make a lot of money from moves like this. So you can either sit through the drawdown and go, okay, well that was a pump, it wasn't a trend. Or you can actually set the exit so that you can profit from these and increase your capital as they come along. You're not going to know the difference in many cases in real time. So you want to combine the concept of momentum breakouts with exiting on strength at times and also a nimble exit if strength collapses. One of the interesting things is because of the amount of social chatter and trade and social kind of interaction that's going on in this market, there are very short term hype sort of events and short term fear events as well. And so what you can see on the chart is really big upper and also lower wicks on the candles. And so I don't use for instance in market stop losses on, on this because the lower weeks are very big and very frequently they just get hit and it bounces straight back up. So I'll use a slower exit to cut my losses. I still cut my losses, but I'll wait for the market close. Well close, you know, the tick over of the daily bar and exit. Then rather than exiting on a stop loss in the market because it's just too often do your stops just get hit. But the opposite is actually true of your profit targets because you've got these massive upper weeks, you know, assuming you're trading long, if you've got a profit target in the market, then every so often you can blink and you've got a 250 profit on a trade. It's like, oh, I just got, you know, profit target got hit, okay, but now it's way back down there, okay? But it happens and it happens over and over again. So a system that takes advantage of that sort of move is, is, it's quite powerful as well. Probably the last one. Let's just look at the last slide here. There's a huge amount of hype, like I've said a few times, and new initial coin offerings coming all of the time. There was a big boom in this back in 2017, which I missed. I wasn't in the crypto market back then. But here's, here's the danger of the hype and also of buy and hold. If you found the new, you know, the next big thing and you bought it expecting it to go to the moon, you might get, you know, some initial excitement. But most of the projects have really no future. And so the token will just disappear, you know, fritter away to nothing. And so if you bought that at the, the left hand side of the chart expecting to, to make millions, then on the right hand side of the chart, several years later, you're left holding this dud and wondering what happened. So again, buy and hold is, is not so great. You won't get out when clear there's no more momentum in that, in that market.
