The “trick”, if there is such a thing, to winning in the foreign exchange trade is to find something that gives you an “edge”, as if it tilts the forex table in your direction, and then to develop a trading strategy around the “trick” that you have discovered. The goal is always to have a 60%+ winning average in your fiat currency of choice, typically U.S. Dollars. How do you find this “edge”? Technical analysis is one “tool” that can help. Pattern recognition is another. Fibonacci levels can pinpoint potential areas of support and resistance, which can lead to a clear plan of attack. Bloomberg has a new idea.
If you have dabbled in the cryptocurrency world, however, the nascent status of this trading arena can beguile even the best looking technical signals and patterns. The result is that the odds that favor a certain condition highlighted by a trusted indicator in the forex world may not deliver the same results in Crypto-Land. Bitcoin also has a well-earned reputation for being the most volatile asset class in history, along with its other altcoin brethren, which can increase your opportunity for gain, as well as loss. Cryptos simply dance to the beat of a different drummer. With maturity, there may come price stability, but the system is actually designed for network stability over price consistency.
Unless you have been living under a rock or been on a long sojourn into the outback, you would have certainly been amazed by the incredible price behavior of Bitcoin for the past several months. After a mediocre January, the world’s favorite cryptocurrency took off in a meteoric rise, setting one record after another. From February through June, it recorded positive gains for five months in a row, something that it had not done since its “parabolic” rise to stardom in 2017.
The “crash” that followed has been termed “Crypto Winter”, and the vast majority of analysts are now in agreement that winter has turned to spring, after BTC formed a firm bottom in late December, roughly around $3,150. This figure may vary depending upon the exchange that you choose, the result of there being no central point of exchange for cryptos. Each crypto exchange actually establishes its own price record and spreads, depending upon the experiences of its own clients.
The excitement surrounding Bitcoin has been palpable. Every analyst, especially the ones with large followings on Twitter, Reddit, or any other social media platform, have not been quiet since Bitcoin’s “comeback story” commenced. There have been a few ups and owns, enough to scare many traders away from this medium. Cynics still contend that Bitcoin will collapse at some point in the future, but no one is paying much attention to these pessimists at the moment. Confidence, however, is the name of the game at present, and there is no shortage of analysts that posit that Bitcoin will set new “All-Time-Highs” (ATHs) in excess of $20,000 in the not too distant future.
What is the new Bloomberg study and what did these analysts discover?
The nice thing about cryptos is that the electronic nature of the medium does allow for immediate sharing of data on all notable indicia. Yes, the wealth of data may not be as great as with traditional equities or forex pairs, but it does allow for active research to proceed in earnest to find the “Holy Grail” of pattern recognition – that chart or pattern formation that will lead to instant profits at the hands of a trader that knows what to do.
The folks at Bloomberg think they have found a repeating pattern that is important and recently published the chart depicted above, along with wisdom collected from many so-called experts in the crypto industry. To put it simply, Bloomberg analysts discovered that: “Surges in weekend activity since the beginning of May account for about 40% of Bitcoin’s price gains this year.” The highlighted “green circles” on the chart tell the actual story. Notice how prices “gap up”, when the weekends arrive.
The nice thing about this pattern recognition is that it relates to positive movements, not negative ones. Yes, negative activity has frequented quite a few weekends, as well, but for most traders, attempting to short cryptos is difficult. CFDs offer one logical shorting route, but regulators are moving quickly to close down the use of CFDs in crypto trading. Too many consumers have complained of the losses that they have sustained, and the FCA, the regulatory watchdog in the UK, is one regulator that seems obsessed with blocking the use of CFDs in the crypto space.
After canvassing the crypto “expert” network, Bloomberg assembled the responses in four distinct categories:
- Ahead of the Pack: David Tawil, president of crypto hedge fund ProChain Capital, subscribes to the belief that the “24/7” trading cycle of cryptos and the subsequent news cycle that begins on every Monday for announcing positive developments is the primary influencer of trading behavior: “It’s absolutely unique. It’s a little bit of anticipatory or front running the news cycle by trading up on the weekend. You’re somewhat flying blind in the sense that you don’t know if there will really be an announcement made on Monday morning but in a packed news cycle like crypto, where there’s developments really every day, I don’t think it’s wrong to bet that Monday morning would have a positive development.”
- Groupthink: Hunter Horsley, chief executive officer of Bitwise Asset Management, bases his theory on the fact that traders tend to be at home on weekends and are commiserating with fellow traders about what might be working in the markets. If there are good ideas, then they act upon them: “The market is, by and large, retail individuals and I think that weekends are a time when those people have more free time to read the week’s news, to chat with friends, to pitch friends on exciting things they heard about during the week.”
- Volume Drop: Montreal-based Jonathan Zeppettini, international operations lead at Decred, a digital currency, thinks that low liquidity is the primary driver for such major moves on weekends: “The fact that these markets are operating when the banks are closed leads to price movements being exacerbated. It also takes a lot less to move the needle when everyone’s sleeping or it’s the weekend.”
Bloomberg Intelligence analyst Mike McGlone also leans toward this simple explanation and believes that professional traders welcome the opportunity to jerk the market about a bit: “It is more Asia and those more sophisticated traders picking time and paths of least resistance to profit. I fully expect the leveraged money professional-types are utilizing all tools to spark moves and profit from.”
- FOMO (Fear of Missing Out): And then there is always the issue of “FOMO”. There seems to be an abundance of traders that cannot get up the nerve to jump into the market, but when prices rise dramatically, they act out of anxiety and rush to establish positions. Naeem Aslam, chief market analyst at Think Markets UK in London, expresses these sentiments: “It is mainly driven by opportunistic investors. Those are people who are following the herd and have huge FOMO. Given the past few weekends, I am certain that many have been waiting to buy Bitcoin at a discount price. A price dip could be seen as an opportunity.”
Does this “weekend opportunity” theory ring true for you? Are you chomping at the bit, just waiting for the next weekend to arrive? Before you jump into the crypto market with both feet, take a breath and remember that many other traders have also read this article or others about the Bloomberg weekend hypothesis. Whenever the “herd” jumps in unison on a new trading strategy, the odds are that the opposite of what is expected will occur. It is the nature of active trading markets. You must always adapt to changing market conditions. What worked last weekend may not work again… ever.
More importantly, crypto markets can be extremely volatile, with swings on the order of 10% or more in a single day. Trading in these shark-infested waters requires a higher degree of nerve and a level of discipline that can shut out any emotional interference. It would be a good idea to practice trade for a bit, since your actions and decision making will have to be quickened to respond to the demands of the market. In any event, plan wisely, grab onto a trend, and run with it for all that it is worth.
Even in Crypto-Land, the trend is your friend!