Weekly Update September 19th

Welcome to our Weekly newsletter!

Another week another FOMC…

On Wednesday this week, Pow Pow takes to the stage again. Expect heightened volatility after this event.

It’s a complex week so I’m just going to focus on the price action I’m expecting leading into FOMC – From my last posts, you have my longer-term view. Any questions just reach out.

BTC – After a hefty overnight drop I’m expecting a move back up to 19500 today/tomorrow morning. Purely looking at the TA we’re oversold here and we’ve managed to drop below the 7th September low and reclaim.

Looking at the opex tomorrow, it's not THAT significant but warrants keeping in mind for short-term price action – Max pain is 19500 and the majority of this is Puts (shorts). Large put walls at 18500 and 18000 should act as near-term support and the MM is going to look at bringing the price back to 19500 by the expiry (tomorrow morning at 9:00 UK time).

On the CME chart, we’ve made a new low! Again we’ve managed to drop below – eviscerate the liquidity and now we have reclaimed so looking ok for a rise to 19500 / 20k here heading into FOMC.

The main reason for the confidence in this small but elusive move up is due to many traders likely liquidating puts (shorts) heading into FOMC. This should provide the market with some stability for the next couple of days.

Then we have FOMC… I need more time to assess the outcomes here and what they will entail but regardless after the event, this should define the direction to month end.

Newsletter Content

The Ethereum Merge Is Done!

What feels like the only topic of interest for weeks, and the upgrade years in the making for Ethereum is finally complete. The Ethereum Merge successfully transitioned the ETH network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). The upgrade has left Ethereum miners in the cold but the transition promises huge environmental benefits with the network set to consume 99.9% less energy as a result. The event itself was completed successfully and was an incredible technological achievement to have implemented. The change of course doesn’t come without its own risks and potential ramifications with concerns over the impact PoS has on Ethereum's decentralisation. Next up in the Ethereum roadmap is ‘sharding’ which will tackle the scalability issues which have plagued the protocol in recent years.

FedEx CEO says he believes the economy will enter a “worldwide recession”

During an interview with CNBC’s Jim Cramer, FedEx CEO Raj Subramaniam stated that he believed that a worldwide recession was looming. The comments came after FedEx failed to reach its first quarter performance estimations. Subramaniam stated, “I’m very disappointed in the results that we just announced here, and you know, the headline really is the macro situation that we’re facing”. Also mentioned that he is seeing declines in “every segment around the world” and went on to say that more recent data is estimating more of the same. FedEx shares fell 15% in extended trading on Thursday.

CPI Print came in hotter-than-expected with 8.3% print

Markets have been suffering badly since last week after U.S consumer price index (CPI) inflation rose to 8.3%. This went against expectations that headline inflation would fall month-on-month. The data insinuates that once again the Federal Reserve will need to continue its aggressive tightening of monetary policy. The central bank is once again expected to deliver its third 0.75% percentage point rate hike on interest rates to combat the high inflation. Legacy and Crypto markets reacted as expected - down.

South Korean prosecutors are now formally seeking the arrest of Terraform Labs founder Do Kwon

South Korean prosecutors have formally put a warrant out for the arrest of Do Kwon in relation to the Terra Luna scandal which saw over $40B in investor funds wiped out. Do Kwon is known to be in Singapore which does not have an extradition treaty with South Korea and prosecutors have now labelled Kwon a ‘fugitive’. Interpol has also been requested to issue a red notice against the Terraform Labs founder and ultimately revoke his passport - the net seems to be closing in on Do Kwon, although he still has time to post on Twitter making light of the situation… unbelievable.

NFT Project ‘Doodles’ raises $54M at a $704M valuation

Amid what can only be described as ‘poor conditions’ for crypto and particularly the NFT market, NFT project Doodles have just completed a $54m equity raise backed by Reddit co-founder Alexis Ohanian, FTX Ventures and others. The company has plans to use the funds to expand the project into Gaming and Music within NFTs which are sectors of growing interest. The raise will bring the project's valuation to a staggering $704m. Is the raise incredible foresight on what we can expect in the coming years for NFTs or is it another example of too much excess capital in the space - I imagine a mixture of both, but time will tell.

Thinking in Possibilities

There is one mistake most beginning traders are making constantly. Waiting for the perfect setups, that end up in a beating or ‘knocking them down”.

If you need to get beaten or knocked to act, perhaps you should consider getting into boxing, not trading. If you need this to do something – you are missing the most basic thing of being a successful trader.

Successful traders think in terms of probabilities. Rather than looking at the outcome of a single trade by itself, they view it as merely one outcome among a set of outcomes. They believe that overall their trading strategy will give them an edge, and allow them to come out ahead if they make enough trades.

Did you know you don’t have to be right each time you interact with the market? You don’t even need to be correct 50% of the time to succeed. Trading should be no more than a repetitive chore – almost boring. But we humans tend to complicate things and dislike being wrong, that’s the reason why trading becomes difficult.

Detaching yourself and adopting a probability-based mindset can help achieve consistency in the markets. Unfortunately, the majority of traders, regardless of their experience level, are incapable of doing this. Most choose to focus efforts on whether the next trade will be a winner or loser.

Trading expectancy

Also known as statistical expectancy or trading edge, delivers an objective and effective method of evaluating a trading system’s performance. In simple terms, trading expectancy is the average amount a trader can expect to win/lose using a particular system. While the probability of each trade is random, the statistical measure can be applied to a large enough sample size of trades. This is why journaling your trades is very important, to get accurate data on the consistency of your system. Data that will define your risk management strategy.

The following components are needed to calculate trading expectancy:

• Win/Loss ratio (accuracy)

• Risk/Reward ratio (R:R)

• Expenses (fees, commissions, …)

You have to understand that you may not make money on the trade right now, or even the next one, but if it makes money over the long run (has positive expectancy) then you need to pull the trigger, be disciplined and trust the process. The uncertainty shouldn’t make you uncomfortable.

Example

Looking at it from a mathematical perspective, if you take 100 trades at 35% accuracy, you win 35 and lose 65. Now if you always target 3x your risk (meaning if you risk $100, you target $300 (or more) each time), this system will make money. Although you may lose the next 6-7 trades, all you need to do is win 3 or more, and you’ll make money over those 10 trades.

Think of it this way; you flip a coin 10 times and each time you get tails. If that's the case, will you start questioning if the coin is bugged or magical? You probably will continue flipping it and will realise if you do that long enough that a 50% rate will start forming up.

Trading is no different, if your system has the expectancy just trust the process as you would do with that coin.

5 lessons summarised:

1. Always manage risk because anything can happen! Anything.

2. To make money in the market, you don’t need to know what is going to happen next. Do not attempt to predict the future but simply manage it.

3. Know that there is a random distribution among winners, losers, and break-evens for any given set of variables that define a trading edge.

4. Do not make a trading edge anything more than an indicator of a higher probability of one thing happening over another.

5. No matter the current price action and its relation to the past every moment in the market is unique.

Beginners vs Professionals

Understanding the risk of ruin principle, not being worried whether the next trade will be a win. Beginning traders rationalise losing the next 6-7 trades as being bad for their overall trading, and start changing the system, or look for REASONS of the losing strike when mathematically you can still make money.

Professional traders only care about making money long-term and over time. They want to maximise their profits by playing mathematics – by thinking in probabilities.

Although beginning traders tend to hang their entire psychology, confidence and performance on the next trade – you have to look at the next one as just one free throw in the thousands you will make over time.

Conclusion

If you can grasp this, I guarantee after you have a long trading history with hundreds (if not thousands) of trades under your belt, one little trade will not mean anything to you. But what will matter, is if you pass up trades that have positive expectancy with lesser accuracy, you may lose massive profits over time.

Thus make sure to let go of whether the next trade will be a winner or a loser. Try not to invest too much energy in this. Start to think like a professional, and pull the trigger whether you have an entry for the next setup, even if it isn't an +A, take the B with reduced risk, simple as that. If your price action strategy has positive expectancy, then that is what you need to know. When you do, you’ll realise a huge piece of the missing puzzle as you’ve started to think like a professional, and started to think in probabilities.

PRO TIP: There is a book that has helped me a lot in this process and I would recommend it to anyone wanting to get serious about being a serious trader, no need to aspire to be a professional, But if you want to have this right, Trading in the Zone by Mark Douglas is probably what you need!

If you decide to read it and find it useful, please come to our Discord server and let us know! Our community of traders will be very happy to break it down with you and share some anecdotes.

See you in the next one!