Last week I dipped my toe back into Bitcoin (see here) and swiftly got stopped out. Frustrating, yes! But that’s trading. It took me many years to understand the difference between luck (or no luck) and sound risk management.
To be sure, last week’s Bitcoin trade was bad luck. Some may argue for a wider stop loss, and that’s a valid criticism given the volatility. Nevertheless, I’ll take a sound risk management framework over reckless trading anyday.
Here we go gain, get long Bitcoin.
Moving forward, I think markets have come to terms with the geopolitical risk caused by Russia’s invasion of Ukraine. If I’m right and risky assets like stocks are ready to rally, Bitcoin is a great litmus test of bullish sentiment. After all, the following charts tell me Bitcoin is once again leading risk assets out of the basement.
Nasdaq 100 (QQQ) – bearish chart patter
The chart below illustrates the weakness in technology stocks this year. Oddly, Bitcoin bottomed on January 22nd while stocks cratered lower. Tech stocks continue to find more sellers than buyers.
Note the red line resistance level failing as Bitcoin gets some love. Just a little.
Bitcoin – bullish chart pattern
Now taking a look at Bitcoin, note the sleeper rally underway. Ever since January 22nd buyers are stepping in and buying. Note the green line support level.
I like the idea of buying the leading risky assets, especially as we emerge from a correction. If I’m wrong and the bear market continues I’ll get stopped out. Again, its no big deal. It’s like folding a weak poker hand, move on to the next hand, or in this case, a new trade idea.
Conclusion
In any event, I’m long BTCC (Purpose Bitcoin ETF) at $8.00. My stop loss level is $7.53 and the take profit target is $10.50. So, I’m risking $597 to make $3,125. This risk/reward trade off looks appealing to me as long as the guard rails are up.
Remember, mind your risk of ruin.
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