The Slow Descent
The Market Tale (Sep 30, 2019)
“So everybody is waiting for a major bounce from support. But every minor bounce retraced quickly. If the major bounce doesn’t happen at all, the further decline will be severe. We might even break $7250.” said Bear, looking at lifeless XBTUSD chart.
“The bounce will come”, said Bull, “The volume is declining, price is not moving much. The market is ripe for a short squeeze.”
“The fact that price is not moving much is an argument both for longs and for shorts.”
“What do you mean?”
“Imagine a person who wants to buy lower. They see that price is not moving — from their point of view that means “not going down”. So they buy.” explained Bear. “Now imagine a person who wants to sell higher. They see that price is not moving — but from their point of view that means “not going up”. So they sell.”
“So traders are just biased in their interpretation of stagnating price action?”
“Exactly. What the current price action really means is “calm before the storm” — a consolidation which can explode in any direction. The best way to trade the upcoming move is to set tight alarms at two levels: above & below low-timeframe support & resistance. As soon as the real move starts, grab your position at market.”
“If you believe that the move will happen upwards, why not buy right now, when the price is low?”
“The key word is “believe” — and trading on “beliefs” is a sure way to get REKT. Let the market show the direction, don’t argue with it. Your rational arguments are no match for the emotional forces that govern the behavior of other market participants.”
“… you’re right,” admitted Bull. However, deep in his heart, he just wanted the price to go up, and that distorted his analysis. He knew about his own bias, so he learnt to always supplement his buy order with a stop-loss. But he couldn’t let go of his bias completely.
“So, let’s see what happens. We can make money either way,” concluded Bear.
Previous episode: The Chop
Next episode: The Pullback
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