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Newcomers in the crypto community often seek insights from experienced crypto traders to navigate the complex market. This post aims to provide a method for predicting future market moves.
Anticipating the Future
Veteran crypto traders understand that crypto trading involves assessing probabilities. Probabilistic thinking involves estimating the chances of different outcomes occurring in the future.
As of now, accurately foreseeing the future remains impossible. Traders must predict the future by considering all possible scenarios.
Consider the case of Doctor Strange in a Marvel movie, who examined 14,000,605 futures to strategize against Thanos. In a similar manner, traders should contemplate all potential outcomes.
It's important to note that I am not a professional, and the following is not investment advice. Just sharing thoughts and observations.
Let's delve into reality, using a 1-day ETHUSD chart from May 19th.
During the May market crash, Ethereum dropped from around $4400 to below $1800 in 8 days.
Four possible scenarios emerge during the crash:
Crypto experiences a 2017-like boom and bust cycle, signaling a market top. Market cools off, followed by a 2013-style double-bubble, turning bullish by year-end. Market declines significantly and suffers unusual losses. Market swiftly recovers and surges to new highs. Each scenario is weighed based on probability:
45% 45% 5% 5% These estimates guide the best trade for each scenario:
Buy during lows, sell during "complacency shoulder" pattern. Buy during lows, hold until new highs. Sell due to projected severe decline. Buy, expecting rapid new highs. Buying seems favorable in 95% of cases, with a 50% chance of new highs, a 45% chance of profit near the previous high, and a 5% chance of significant loss.
Traders could apply these insights to their existing positions, avoiding panic-selling during the crash.
Doge & Elon
Elon Musk's tweets about Dogecoin prompted market movement. Future scenarios include:
Continued shilling leads to price increase. Shilling doesn't affect price. Elon stops promoting, but Doge surges anyway. Elon's silence coincides with price drop. Probability distribution:
75% 10% 7.5% 7.5% Considering past behavior, a reasonable estimate is that Elon's enthusiasm might influence Dogecoin's rise. Potential upsides could reach 350% in favorable scenarios and a possible 50% loss in unfavorable ones.
Estimating Probability and Price Upside
Estimating scenarios and their likelihood involves some guesswork. Historical data offers hints about future trends, as previous markets were shaped by individuals similar to today's participants.
Examples of historical questions:
How did previous drawdowns impact bull markets? How did Dogecoin perform compared to Bitcoin historically? How did hyped altcoins perform? What was Bitcoin's multiple between all-time highs in 2013 and 2017? How did assets fare after getting listed on major exchanges? While history doesn't repeat, pattern matching can help estimate future possibilities. Experienced traders consider complex metrics to inform their guesses.
Proceed with Caution
Most retail traders struggle to assess crypto attributes and price behavior. Inaccurate estimates lead to poor probability calculations and potential losses.
For many, holding crypto exposure is sufficient; active trading isn't recommended due to risk. Slow down, extend time horizons, and embrace probabilistic thinking.
This isn't investment advice; it's a way to think about short/mid-term crypto price movement. Remember, even billionaires like Sam make bold calls.