Take Irrational Profits

If you’ve heard me speak at a conference you’ve almost certainly heard me repeat the saying, “Markets can remain irrational a lot longer than you and I can remain solvent.”

My core investment philosophy is to take full advantage of this market irrationality whenever I possibly can. Bitcoin is certainly presenting investors with an unprecedented opportunity to capture what I like to call irrational profits.

Just over three months ago I wrote that my indicators were Bullish on Bitcoin. At the time bitcoin was trading near $5,000 and I suggested that it would be a good opportunity to buy bitcoin if it fell below $3,300 and rose back above $3,300 again.

It did so less than one week later. Today bitcoin is over $16,400. That’s a gain of over 400% in just three months.

There’s no doubt that making 400% in three months is an example of irrational profits. I, for one, am more than happy to accept them thank you very much.

Is it time to take profits in bitcoin now?

When prices go parabolic it’s never a bad idea to take a little bit of money off the table. If nothing else, you can crow that you banked a 400% gain in three months.

But let’s take a deeper dive on where bitcoin stands today.

Our first chart of the day is a very long-term chart of the price of bitcoin together with a history of the TradeStops VQ on bitcoin. It’s interesting to see that over the past 5 years of trading, the VQ has dropped from over 80% to under 50% today.

Long-term price chart for Bitcoin with Volatility Quotient

Bitcoin is still very volatile but it’s a lot less volatile than it used to be.

The TradeStops Stock State Indicator (SSI) chart on bitcoin shows that bitcoin most recently moved from the Red Zone to the Green Zone in mid-2016 at around $700. Bitcoin is up over 2,000% since then.

BTC triggered a Stock State Indicator (SSI) Entry signal in 2016
You can also see in the chart above that bitcoin has dipped into the SSI Yellow Zone about 7 times since then. The last time bitcoin dipped into the SSI Yellow Zone and rose out again was in September 2017 … when we made our call to buy it.

Today the top of the SSI Yellow Zone sits around $12,000. The top of the Red Zone is around $9,000. We should not be surprised to see bitcoin drop below $12,000. We would like to see it hold above $9,000.

We’ve identified a very accurate 8.6-month cycle in bitcoin that we’ve mentioned a few times already. It’s predicting a local top in bitcoin before the end of December. That wouldn’t be very surprising.

Time-cycle reveals BTC at 8.6 month peak

The Takeaway

These days I’m rarely one to sell my winners. I wouldn’t be sitting on 1,000% profits in bitcoin if I was. But given that the time-cycle forecast is working so well and my profits in bitcoin have gone parabolic, I am looking for the right time to take some money off the table.

If you’re just getting started in crypto currencies, you’ve obviously got to make sure that you never risk more than you’re willing to lose. If you’re willing to risk $1,000, for example, you can invest about $2,160 in bitcoin today. If that $2,160 investment falls 46.3% (the current VQ of bitcoin) you’ll be down $1,000.

Dipping your toes in the water is fun. It’s an adventure. It’s also great to be on the bleeding edge of a new technology that is clearly changing the way the world thinks about commerce and currency.

I’ve developed a personal interest in the opportunity that crypto currencies and blockchain represent.

You’ll certainly be hearing more about it from me in the coming weeks and months,