In This Episode
- Why crypto trading is like stock trading
- Thoughts on leverage in crypto trading
- Why Bitcoin might not be the best thing in the long term
How Crypto Trading is Different From Other Markets
Each trading market requires a slightly different psychology to trade it successfully. Listen in as we talk about what works in crypto and what doesn't.
We also discuss the future of Bitcoin and the Elliot Wave analysis on the chart. In order to follow our conversation, the chart is provided below.
Elliot Wave Analysis of Bitcoin
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Read the Transcript
Hugh: So Walter, every market has its own separate psychology. I guess, you could say in order to trade it. What do you think about the psychology behind the cryptocurrency in order to trade that market successfully?
Walter: Trade it successfully? One thing I would definitely look at is leverage. When I was trading cryptos, — I do not know what it is now but five years ago, back in 2016. — When I was looking at it because there were not enough brokers that had it, the leverages were all messed up. It was hard.
Hugh: It was super low.
Walter: Yeah, super low. Like, why would I trade this? On one hand, I think it is just like the stock traders. They really do. To me, the guy who trades shares like Apple and Tesla or whatever the darling stock at the time, Amazon or whatever. Those traders who trade those and who just buy and buy. When it goes down, they buy some more.
To me, that is kind of the mindset. It is always going to go up. I have actually seen these guys on Twitter and they say things like, “Rule number one: Buy. Rule number two: If it goes down, buy more. Rule number three: See rules one and two.” They were just on a perpetual uptrend which has served people well.
There was a big crash I think when cryptos hit Bitcoin at nineteen thousand. I believe this was the second leg. So, if you will look at things through the Elliott Wave Theory which I do not necessarily look at but I am aware of it. I find it interesting.
You would argue that, I would argue that just look at Bitcoin against the US Dollar. The first wave that we had was up to nineteen thousand, just under twenty thousand I believe. That was the first leg. So that was wave one then you had a retrace ABC. Then, you had the third leg which I think we’ve probably just completed.
Which is usually one of the longest ones and takes a long time. And then I think we’re in the eighties, see it retrace there and then you have the fifth one which really, goes super sharp. It collapses from there after you know eventually restart another trend like another move. That is what I think we are at. I think we are just off at wave three and that is like long term. That is what I think.
I think that the people that trade cryptos are kind of softer. You just assume that it is always going to go up and that usually works in the bull market. But in the market like this, I just saw today some people posting in YouTube like, “I am going to buy some more Bitcoin when it hits twenty-five grand” stuff like that.
That is cool but you just have to remember that I think it will be really hard to be a trader. Let us say, you are twenty-two years old and everything that you’ve seen in your whole life basically has been the markets going up. Because, when 2008 happened, you were eight years old. So you didn’t really see that.
So your whole life, all you’ve seen is basically free money and every market has gone, “Poof!” to the moon. I think that is difficult. I was kind of like that too as a child of the eighties, I had that same perspective.
The only thing that is different is that I was aware of the 1987 crash. That was a big deal back then. So I was aware of that but again all my friends who were kids, “I will just be buying right now”. And so, it would’ve worked out.
Same thing about buying in 2008. Warren Buffet basically bought Goldman Sachs in 2008. It was on sale when he bought it. These were good people. This was a good business with excellent people. I think the mindset of most crypto traders, now again there are going to be some technical traders out there that buy and sell and do it in the lower time frame. But, most of them almost have an investor mindset.
Where they are just kind of buying and buying and buying. Buying on the break outs and buying on the pull backs. That is what I have seen mostly. That is my thought on that but I could be wrong. You do not find a whole lot of people saying, “Crypto is going to go into the bin.”
The people that say that are usually the older ones who do not think crypto is like a real asset.
Hugh: Like Petership.
Walter: Yes, like Petership. People like that, exactly.
Hugh: I totally agree. It has a lot of potential and it is a very young market. So I think it is going to go up in the long term. You’ve just got to mine-hold. A lot of them are like penny stocks also. These people are kind of gambling on the pop but the bigger ones are requiring an interim or whatever or like you say the stocks.
You just hold them. You look for the fundamentals. Is it a good project? Is it good technology? You are just kind of buying on average outright. I totally agree. To be successful, you’ve really got to have a strong stomach. Be willing to weather the draw downs and just understand the long term potential of the cryptos.
Walter: Exactly. I mean, it is like any new technology. I remember when they had these little robots back in when they came out, we got like the first ones. Because we’re like, “We do not like to vacuum” or anything and we had a little kid and stuff. The thing is like, the next generation that came out, which is just the same with the iPhones or whatever. The next generation that came out is so much better.
It is the same with internet browsers, you know. The best internet browser was Netscape and that was the darling stock in the nineties. Actually, Gateway 2000. People do not remember but Gateway 2000 was basically the Dell. That was Dell computers before Microsoft. The first things.
So Bitcoin was like the first thing. It does not necessarily mean it is going to be the best one in the long term. It could be something like Ether that ends up being the backbone of everything. We had — I really do not know I was not on it but we had — AOL message boards or whatever.
Now, you have things like Instagram and Facebook, and YouTube. It is kind of like fractures. I used to go on AOL message boards so you can find any sort of topic that you are into. If you are into dogs or stocks or whatever and then now the internet is so fractured. You have to kind of really dig down and go into the forum that is about government pictures or whatever. Do you know what I mean?
It is so specialized now and so deep. To me, I find it really fascinating that when people say things like Bitcoin is going to go up because we talked about it before. I said, “I think you know Bitcoin will probably go to forty thousand”. I think in 2017, we talked about it. I said, “I think you know Bitcoin will go to forty thousand but it has to go back down first” and that was when we got that first wave up to nineteen thousand.
People just forget that there are heads and flows to it. As a trader like if you trade the four-hour chart, you understand that. If you trade currency, you understand that. One of the advantages that we have over stock traders where the majority of them are only just buying. They are not making it on the down side.
I mean, if you think of the downsides, they do not ride the down sides. Whereas, we can ride both sides of it. So that in some ways is an advantage for us. In other ways, it is a disadvantage because all we ever have to consider is when should I buy and when should I sell. Whereas, we think should I buy or should I sell?
Hugh: Plus the number of opportunities.
Walter: Exactly. We have way more opportunities.
Hugh: I am interested to hear your thoughts on Bitcoin. I think it is going to up still but do you think it is an outdated technology?
Walter: It is a great question. I do not know enough about it. I know that there’s enough to be dangerous. What I would say is, it seems like the people who are smart are pointing out that it is a bit clunky. It seems like it takes a lot to manage it and all that. But in terms of accepting it like if I was in an online store that accepts Bitcoin, it seems like it is not the best version of that technology.
Maybe something like Ether is but the other side of that is you can store its value because they are not unlimited. There’s only like twenty million of them. A lot of them have been at a loss or whatever. So there is not really going to be twenty million once they mine it all out.
So the other side of it is that it can be stored in value. I think it will go up and it is going to go down again like the first leg. I think this third leg needs to go down probably a bit further than it is now. I do not even know where it is now. Do you know where it is?
Hugh: It is like thirty thousand or something like that.
Walter: I think it is around thirty thousand as we record this. So my guess is it will probably fall to twenty, something like that. Twenty-two or whatever but before we can see that fifth leg kick in.
Hugh: Interesting. I never thought about that. I think Kiyosaki is talking like twenty-five; he’s buying at twenty.
Walter: That is what I saw on YouTube today. If you were talking about buying a bunch at twenty-five. Maybe that is where they got it from. Maybe they got it from Kiyosaki. It is true what they say about the Elliott Wave. It should not go lower than the first leg’s high.
Actually, if you look back at the first leg where it went up to nineteen grand and then it came back down. I was thinking it would go down to like eleven hundred or something like that. One thousand which is kind of like the first break out on the micro scale but it never did. I think it only went down to three thousand or something.
So it did not take out that previous high at one thousand or eleven hundred waves. If you want to call it, you will look at the first birth of it. In theory, if I am right about this being the third leg. I think the rules of the Elliott Wave would say, at least as written by Robert Prechter in his famous book.
It should not take out that nineteen thousand high that it made before. I think it made nineteen thousand, seven hundred or something around there. Right below twenty grand I think, if I remember correctly. So it should really take that out. It should've bought him out above that. So twenty-five would fit if that would be true.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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