Weekly Update October 10th

Welcome to our Weekly newsletter!

Going to break down this update using the 5 elements I have been looking at since learning more about market mechanics. Looking at the market in this way has helped me a lot recently regarding timing moves.

I grew up in the generational bull as many as you have so I’ve had to adapt and go on a steep learning curve this year but it’s been great.

So I look at 5 elements each day:

• Technicals

• Fundamentals

• Mechanics

• Sentiment

• On-chain

Let's use today / this week as an example – Above you have a bit of a view of how I used it last week to time a correction…

Technicals – Some possible signs of a bottom when you look at SPX weekly candle – Inverted hammer. BUT absent of this generally overall the TA picture isn’t great. BTC is still in a range, possible bear flag.

Fundamentals – Not great at all, the macro environment is still grim as ever. This week we have some CPI data and some heavy Bank ER’s at the end of the week and I see this as a downside risk.

Mechanics – Smart Vs dumb money index is still at extremes with retail in fear mode and smart money feeling more optimistic. Looking at Long short ratios + Volumes we’re not in the ‘’overly bearish’’ state we were in before last week's squeeze – I’d say we’re middle ground positioned here so there is no HUGE conviction in either direction BUT still a short side bias. We have a put wall at 3600 SPX and a call wall at 3835 – So we're at the bottom of the range.

Sentiment – I still see influencer plebs trying to play short-term longs – Still some evidence of denial when I look at the sentiment but bullishness has cooled off a little since last week… Understandably.

On-chain – BTC continues to look ‘’Ok’’ – I am seeing some ‘’light’’ signs of big money flows withdrawing BTC from exchanges in big chunks but I still don’t feel I have enough evidence of big smart money flows here.

CONCLUSION: 

No clearly defined edge RIGHT NOW (But that can change throughout the week). But as of right now we’re in a kinda ‘’Middle ground territory’’ – The mechanics aren’t overly bearish or bullish, technicals don’t look good enough to long or short here and although I think influencer sentiment is still overly bullish. It's not euphoric enough or confused by the market enough to warrant an edge.

Take last week for example – All the plebs thought the markets were going up because of a possible pivot being priced in. However, we knew it was purely mechanics AND options showed the late shorts were almost all taken out. That’s an edge where you take a big bet on the other side.

No edge right now but as I said that could change. I imagine we range through to Thursday, and maybe get some short-term upside

Binance Hack for $100 million

Last week the Binance Smart Chain was hacked and initially lost over 2 million BNB tokens, worth approximately $568m. The hackers made off with around $110m but that figure could have been significantly more. The BNB chain decided to halt the blockchain to prevent the hackers from extracting all of the $568m which was initially stolen, limiting the losses to around $110m. Once again, the source of the hack came from the vulnerabilities around the BSC Token Hub cross-chain bridge. The exploit allowed the hacker to mint fresh BNB tokens, and these were not stolen directly from users on the blockchain. So far this year around $2 billion in cryptocurrencies have been lost due to cross-chain bridges. Early this year we saw $625m stolen from Axie Infinity’s Ronin Bridge, in June, $100m was stolen from the Harmony Horizon bridge and in August attackers stole $190m from the Nomad cross-chain bridge. A clear weakness in the crypto ecosystem.

FTX launching visa debit cards

FTX is looking to roll out crypto-linked debit cards globally to its customer base. FTX will be offering Visa debit cards as part of a global partnership with the payments giants. The cards would allow users to make purchases at 80 million merchant locations which accept Visa. Debit cards which are linked to FTX accounts are currently available in the US but plans are to expand into 40 countries across Latin America, Europe and Asia. Cuy Sheffield, Visa’s head of crypto said in a statement that “We believe that digital currencies will have a lasting impact on the future of financial services and money movement” and also that “We’re excited to partner with leading crypto exchanges like FTX to bring more flexibility and ease-of-use to the way people use their crypto” A huge partnership between one of the largest crypto exchanges and the world's largest payment processors. 

Celsius exposes user information in public court documents

Cryptocurrency lender Celsius is once again under fire after revealing the names and recent financial transactions of its users in recently available court documents. Incredibly sensitive information was made public including customer names, date of transactions, position sizes and even types of accounts used by customers. Although some information was made redactable such as the home addresses of affected users - this has been a highly concerning revelation for all of the users involved. Such information which should remain private has potentially enormous consequences for users' professional and personal security by exposing such sensitive details. It emphasises how users' data is exposed from the start with CeFi solutions such as Celsius.

UK $10B a day in bond purchases

The Bank of England has increased their initial scheme of buying $5b in government bonds to $10b per day until October 14 2022. In a recent statement it was said that “[It was] prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5bn in each auction. The maximum auction size will be confirmed each morning at 9 am and will be set at up to £10bn in today’s operation”With inflation running rampant across Europe and Globally, the UK finds itself in a position where the financial system simply cannot stop quantitative easing and money printing.

Most traders don’t have a trading journal or don’t even know what it is. The reality is that professional and successful traders are likely to have a journal.

You might wonder, why is that likely? The same as professional gamers journal their performance and find their speciality. Or a sports player, like a boxer, tracks his diet, weight, strength, resistance or motivation; and of course his results.

There are many people out there doing sports or playing games but not keeping a record, that’s the difference between amateurs and professionals.If you are not journaling your trades, maybe it is because you don't take it seriously enough; or perhaps you don’t know how to create a trading journal or what to write in it.

I guess anyone can figure out the basics, like the minimal info, but the truth is that there is no rule. When it comes to creating the best trading journal, generally speaking, the more information you record within it, the better. At a minimum, a journal should include the following: 

• Entry and Exit date – The date and time that you start and finish your trade

• Markets – Which markets are you using

• Setup – The market conditions which triggered your trade

• Trade size and risk – How much you can risk and afford to lose

• EV and R:R – Expected value and risk/reward ratio of the trade.

• Price on entry – The price when you entered the trade

• Price on exit – The price when you left the trade

• Profit or loss of the trade – The total value of your investment after trading has ended, including whether your made or lost money

• Notes – All other relevant information around the trade.

As you can see there is nothing special on the list above, very standard parameters to keep track of what you are doing, how you are doing it, and the results after you have done it.

PRO TIP: Get back to that list of minimum parameters that your journal should include. Now on the last one “Notes” is very general… I recommend you fill that field not only when you enter or exit the trade, but also every time you check or do some management on it (move SL, exit in advance, partial profit taking, etc). 

A trading journal helps you identify your strengths and weaknesses. No one is a perfect trader, such a thing doesn’t exist because even the best traders lose and probably lose a lot of times. But they know how to lose to avoid jeopardising their trading account because they are aware of what are their strong and weak points, and have an edge.If you want to find that edge you must have a consistent set of actions, in other words, you need a specific strategy where your setups are always similar.

But, having a strategy and being consistent in your actions doesn’t mean you are guaranteed to be a profitable trader. In the case that you don’t have an edge in the markets, your consistent actions would lead to consistent losses.

Here is where the importance of the Trading Journal comes into play! If you have a good trading journal, you can look back at your past trades and identify which ones are costing you money — and stop doing that and learn from your mistakes once you have found them.

Then, focus on the ones that are the most profitable for you… and refine them until you find your edge in the market. Avoiding the ones that make you lose and picking the ones that gave you profits should at least start to improve your performance.

PRO TIP: Always include in your journal some lines about psychology. Note down: How was your mood, how’s your life going, what were your biases when taking the trade, what motivated you to take the trade, if you had more positions in the same direction, FOMO, addiction, revenge, boredom. Most traders fail in the emotional/psychological aspect of trading. It’s even worth keeping a separate journal to find your psychological edge too, noticing and being aware when you are in good conditions for trading and when not is vital.

To finish up, trading is your business and nobody better than you to know what’s best for it. Make it your own. Keep playing with your journal; add, subtract, change, and improve. But above all be consistent. A trading journal works if you do the work every day.