As many of you are aware, for the last months I have been advocating patience to those asking when to invest in alts, reminding us of the generally bearish market trend since January. I have recently updated my outlook and wish to share it with you. This is Luc’s personal outlook. I share it not to tell you what to do, but to augment the information pool you use in putting together your own trading decisions.
My crypto portfolio is part of the high-risk portion of a larger portfolio invested across a diverse set of assets. It represents a small portion of my global portfolio. My primary objective for my crypto portfolio is to grow its BTC value. Until recently I was holding mostly BTC. My evaluation of the long-term potential and pertinence of both blockchain technology and crypto currencies remains unchanged. I have said before that if you combine the level of activity and the global attention this sector is receiving with the minuscule size of these markets compared to conventional ones, you get a major anomaly that the markets will inevitably resolve, either by adding massive value to the crypto sector or by bringing it down, which at the point we’re at now would entail an implosion leaving almost nothing behind.
Many of the alt markets have reached 2017 support levels and have been bottoming for a month with good volume. My read on this is that we have relatively solid support at these levels from either controlling interests wanting to protect the levels or buyers seeing bargain prices, or both. While no information can lead us to conclude that we are now in an uptrend, there has recently been a fair amount of activity in the markets, with many inching up 20-30% since their last low. Given the reaction time, small size and vivacity of alt markets, I don’t consider a prolonged stagnation period a high probability scenario, which leaves two possibilities from here: down or up. Which way the markets will go, I have absolutely no idea.
My trading decisions are bets. It is my job, as a trader, to find the trades where my odds of winning are the most favorable. The best I can do is evaluate the odds that markets will go one way or the other and at this point, I consider there are more chances that they will go up in the coming months. For this reason, I have decided that now is the time for me to invest in alts.
My strategy from now on will be to be continuously invested in alts, trading at a minimum in order to keep fees low. I will evaluate trade performance a few times per week and occasionally shift positions around if I feel this provides more chances of maximizing returns. I will enter positions in “investment mode”, which for me means without stops. This is congruent with my mid-term view on the markets, has the benefit of not subjecting my positions to high volatility and also requires less maintenance.
My profit taking strategy will be to sell 1/3 of my positions at +100% and let the rest roll with a very loose stop. I will determine stop positions by achieving a compromise between staying in trades for the longest possible duration and protecting profits. I will also use previous retracement magnitudes as a guide. I will protect a minimum of 50% of my paper profits after a trade reaches its 100% initial target. I will recycle profits in new positions.
I will select the markets where I invest by favoring high market caps but will also include a few mid-sized markets as they can provide superior returns. All the markets mentioned in the
Diamond Report will be included in my selection, except ETH where I will wait. Since I will be 100% invested in alts, my exposure level will be uncontrolled. I will try to somewhat offset this by looking for a few opportunities where I can expose myself to abnormally high returns. Strictly speaking, there is no way to “compensate” for high exposure; this quest for a few very high returns is merely a way of feeling more comfortable with a level of exposure I wouldn’t normally accept.
So, there’s my strategy for the coming months. I have carefully thought out my decision and feel confident about it—which is very different form saying I am confident in its outcome. If the markets go down, I am prepared to endure. It is a gamble, but one where I think the odds are on my side, so the only logical step for me as a trader becomes to allocate my capital in a manner that is congruent with my conviction and the overall risk management strategy of my global portfolio, which may be completely different for you.
Please, if you do not feel that you are experienced enough to confidently take your own trading decisions, do not even think of adopting this strategy and rely instead on the Crypto Addicts guidelines documented in the Diamond Report.
Luc for Crypto-Addicts