Anti-bearish signal: dumb money still shorting on Bitcoin

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Adriaan Admin

Staff member
Jan 30, 2018
A famous market wisdom is to trade opposite of what the herd is trading; this is also where the expression "sell when everyone is greedy and buy when everyone is fearful" comes from! Following that knowledge is also that the "dumb" money (how wall street refers to retail investors) is wrong most of the time. When you want to follow the smart money, your best bet is to do the opposite of the "dumb" money; this is called contrarian trading/investing and there are several strategies that can be applied to be a contrarian. The sentiment of "dumb" money is often reflected in numbers as how the "non-commercial" investors are exposed to longs and shorts.

Eventhough my personal belief is that the bottom might not be in yet and that there is still room to go lower to have that final devastating despair among investors to shake out all remaining weak hands, still a short term bullish rally could very very well happen, especially with all the bullish news coming out recently, specifically the ETF expectation; this might potentially lead to FOMO buying because of overextended expectations on the known unknown (regardless of what effect the ETF would really have on the price).

Beyond that, apparently and despite the recent "short squeeze" bitcoin rally that has not yet corrected, the risk exposure to short positions in Bitcoin futures of non commercial investors (= "dumb" money) is still extremely high; that is practically an invitation card for a further short squeeze by "smart" money = whales or commercial investors.

The problem of course with my personal belief that the bottom might not be in yet, is that it can be easily disproved if enough bullish news combined with enough upwards momentum (partly fueled by short squeezes) are causing wider FOMO once again. Depending the duration and strength in a new wave of FOMO this could shoot us all the way through all major resistances, which are now around 8.3k, 10k and 12.5k, which could potentially completely destroy the bearish narrative.

So currently I honestly find both the bullish and bearish narratives quite convincing, so if I were to choose at this precise point in time, I would probably go for a 50-50 approach. This could, as a random example and certainly NOT investment advice!, look like: have 50% of funds invested in btc, 50% in fiat. Everytime a resistance is taken out with a weekly close, 1/3 of fiat transferred into btc. If on the other hand Btc goes down again, I would take an approach of accumulation in 5x 10% phases, starting from a close below 6,800, then every week when it closes resp. below 6,000 and 5,000. Once 5k has been taken out, the following 2 weeks just buy at whatever price it is (which is probably going to be not that high anyway).

Where do you feel the market will be going currently taking all this into consideration?