Portfolio management – Dollar Cost Average strategy edition 2 =

Disclaimer

AllesOverCrypto likes to let people speak about their crypto adventure. From this initiative I suggested starting a guest blog series here on the website. It is important to know that I do not work at AllesOverCrypto and that everything you read in this blog is only my personal opinion and this is separate from AOC.

What do I think of the current market

In short, all technical indicators are screaming that now is a good time to buy, but it’s not that easy. Often I hear the saying “Buy when there’s blood in the streets” and you could say that now is the right time.

The war in Ukraine is causing a lot of uncertainty among investors. We are also experiencing record high inflation around the world. Statistics Netherlands (CBS) has published the (provisional) inflation rate for the Netherlands in August 2022: 13.6 percent . Last year this was just under 2 percent, a worrying development.

We are also dealing with an emerging energy crisis. The increase for households has been measured by Statistics Netherlands for the month of August at 6.6 percent and with the cold months ahead, this may turn out to be unexpectedly expensive for some households.

My conclusion is therefore as follows; the bottom is a lot closer than the ceiling.

This is not the time to go all-in on crypto or stocks, but a good time to buy a piece every week/month . I have already started with this strategy, this way my portfolio gets a nice low average and I am ready for the next bull market.

The indicators and metrics

This edition I will also show what the indicators and metrics are that I use. These will therefore often return in the blogs. You can assess the market in different ways, there are investors who look at the position of the moon, others do a technical analysis.

Everyone must find a way for themselves that gives them a clear picture of what can be expected. Standing alone, indicators only tell us a small part . If we look at three or more indicators/metrics and they all tell us the same thing, I can paint a much clearer picture of what to expect.

The way I analyze the market is a mix of indicators divided into main groups. These main groups are discussed below. I will immediately explain why. All the indicators I use are for the long term: I think in months not weeks .

1. Sentiment

By market sentiment I mean, what are other crypto investors doing? Are they busy with purchases or are they just waiting on the sidelines. I have a number of indicators for this to know what is happening in a few clicks.

The first indicator is the Crypto Fear & Greed index. The name says it all, with this I assess whether there is fear or greed among the investors. The indicator gives the sentiment a score between 0 and 100. Score 0 is Extreme Fear and 100 is Extreme Greed. In recent months he has hung around 20, the Extreme Fear side. Last week I saw that it was rising towards 34 and the sentiment was a lot more positive. The expectation from America was that inflation had been pushed back, but it came out at a growth of 0.1%.

Alternative.me

 

The second indicator I use is google trends, this allows me to quickly see if search terms like ”Bitcoin” or ”buy Bitcoin” are increasing in popularity. What I can find with this is whether the novice investors are starting to warm up to crypto again.

These indicators now tell me that sentiment is still very low, so we will need to get a lot of positive news to turn the price and sentiment around.

2. Liquid supply

By liquid supply I mean, how much Bitcoin is currently on exchanges ready to be sold? With this metric I can see whether the flow on exchanges is increasing or decreasing and thus indirectly tells whether people are buying or not. If the stock increases on the exchanges, it tells us that relatively many investors are looking to sell Bitcoin. If the stock on exchanges decreases, I see that more is being bought and that this is taken from exchanges towards a hardware wallet.

Bitcoin has a maximum supply of 21 million coins , many news sources say that around 4 million have already been lost . These coins are stuck in a wallet of which the administrator no longer has the password, or has forgotten it.

Cryptoquant.com

Looking at the chart above, I see that there are currently 2,307,796 Bitcoin being offered on exchanges. Last June, the 19 millionth Bitcoin was mined . If I subtract the 4 million from this, it’s already at 15 million. The remaining 12,692,204 have already been purchased and are on hardware wallets.

This indicator tells me that 2.3 million Bitcoin determine the current price . I also see that this number is decreasing. So many people buy Bitcoin and secure it on a hardware wallet.

3. Technical Analysis

With the technical analysis I try to predict future price movements with historical price movements. Personally, I prefer the so-called ”naked trading”. Here I try to predict what will happen in the near future with the preceding candles. Because this is a simple method , it is also often used and it has proven to be an effective method to predict the market as accurately as possible.

 

 

As you can see I have two green boxes, one indicating the top of 2021 and one for the bottom of 2022. I have indicated with three yellow trend lines what the price action is showing me now. In this case it is a descending triangle and that is a bearic (negative) continuation pattern, which will have to be broken if we want to find our way up again.

Look here for a basic explanation of the different patterns.

3.1 Moving Averages

The orange line is a moving average, in this case it is the 200 Simple Moving Average (SMA).

Moving average is a fixed number of consecutive elements in a time series , which shows the average over the course of a period. As we see in the image above, I use the 200 SMA, which takes the average price over the past 200 days and gives it the shape of an orange line. The orange line tells me again that there are more sellers (bears) in the market than buyers (bulls). Many traders use this as a ”Bullish or Bearish” indicator, if the price is above it then the bulls are in control. If the price is below, it is the Bears’ turn.

The moving average makes it easy to quickly identify a trend.

A chart I like to use based on the 200 Daily Moving Average (DMA) is the Mayer multiple, see the figure below. This chart uses the 200 DMA (Purple Line) as a base and multiplies it as price levels. In this case the price of the 200 DMA is $31,119 * 3.4 (upper blue dotted line) = $106,076 so the ”Extreme sell”. What this standalone indicator tells me now is that we are at the ”STRONG BUY” level, which is a good time to buy in given the history. If the course reverses and the price of Bitcoin reaches ”SELL”, my rule of thumb is to sell around 5% of the entire portfolio per day.

Checkonchain.com

 

The portfolio

The portfolio has dropped slightly since the last update, when I had a nice return of +12.19%. Unfortunately, due to rising inflation, the market has had a hard time and all assets have fallen in price again.

However, this is not all negative news, the past five times that I have bought in, the price has been lower than the previous average. If the market picks up again now, I will make a profit faster, given the average is lower, I also took a trade between Cosmos and Bitcoin, which I explain below.

 

 

On September 10, I sold part of the Cosmos position. Between September 7th and 10th, Cosmos rose from $11.55 to $17.21 on September 9th, however it failed to break through the 200 DMA (Orange line) and I sold around 33 Cosmos on September 10th at $16. This resulted in a net profit of 240$ and bought 0.01164709 extra Bitcoin for this.

 

What may be striking is that the prices are shown in dollars and not in euros. The reason for this is that the dollar is a world reserve currency and is much stronger than the euro.

I include this in my technical analysis. On Cosmos’ euro chart, the price is just above 200 DMA, as sentiment in the market is still very negative , the dollar chart currently paints a clearer picture of what to expect.

I don’t expect much change in the market for the coming weeks. The best we can hope for in terms of positive news for crypto is that the war in Ukraine will soon come to an end. This can provide a significant boost to the economy and thus asset prices.

If you want to know more about who I am or what I do, check out my website.

If my investment strategy appeals to you, copy my crypto strategy via the Iconomi platform.

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