It’s been 6 difficult months for Bitcoin, most notably due to the leading exchange’s collapse, MtGox. Bitcoin collapsed down to $350 from the highs of $1,150 and is currently trading for $570 at Bitstamp. Will the recent rise help the real Bitcoin stand up?
Price manipulation is suggested as one of the reasons for the extreme rise in 2013. A report puts the $1,200 bitcoin price to MtGox fraud, although other factors certainly affected its price. As all that is now history, this month Bitcoin regained trust and is back on track for yet another uptrend (?). And this time, lessons are learnt.
So, Bitcoin is set for a restart as I shared at TradingView last week. At that time, Bitcoin had just had the first day of demand spiking, while the price had cleared off the downward trend line. At the time of writing these words, Bitcoin is up 16% since then.
Have you missed the Bitcoin train, again?
When traders read of a missed trend, they either blame the author for not notifying them earlier, or worse, enter the market on bad timing.
Sure, financial authors don’t let the world know of their every trading position or advice. They are busy writing their next article, or, in my case, they are actually trading! Yet occasionally we do (let the world know) and there is no quicker way than saying the word at social media. Thus, make sure you follow your favorite writer/trader and don’t miss their quick updates.
On the other hand, delaying to enter the market will hurt your trade’s chances considerably. By that, I refer to the most important element of your trade; the risk/reward ratio.
Let’s see how you are possibly making a mistake by considering going long Bitcoin.
First, I’ll talk of my hypothetical Bitcoin trade.
Say I traded long at the time of posting at TradingView and bought Bitcoin at $490. My stop loss (you do know what a stop loss is, don’t you?) would be either placed at $420 or $320, depending on how fast I’d like to trade. If I was planning to hold onto my position for weeks, a looser stop loss ($320) would be required.
Say though, I was looking for a ‘quick buck’ and decided to risk $70 per Bitcoin on this trade. In order for my trade to have a 1:1 risk/reward ratio, I would need to place a profit target at $560.
Yes, exactly. I’d be already out of the market with a profit. Guess whom I would sell to! Correct again, you! You’d be entering the market at the same time I exited. Thus, if now Bitcoin retraces back to my entry point ($490), you’d be losing money, while I prepared for a re-entry! Not to mention, my account would already be $70 up, so this new trade of mine would come cost-free!
Your profit target on the contrary is several hundreds of dollars higher, in case you also aimed for a 1:1 risk/reward trade. Having bought at $570 and setting the same stop loss as mine ($420), you hope Bitcoin to climb up to $720! Of course it can happen, but wouldn’t you rather having bought at $490?
What’s that? Setting a tighter stop loss yourself, say at $500? Convince me Bitcoin will find support higher than that during a retracement.
Given I am on the same boat with you though, meaning I have not traded Bitcoin till now, I would wait for a pullback instead of buying now. The risk of buying a top is considerably high. And we won’t make it to the millionaire club, if we buy tops and sell lows.