The first thing to notice in the chart of Bitcoin over the last several years is that the bull markets are very fast and sharp. They don’t last that long, but they are exponential, and the Market skyrockets. But after the bull market is finished, there’s typically a very sharp correction and a long period of nothing, which is very painful if you’ve got the wrong system style. And suddenly there’s a new bull market that rockets up, and then the same thing again, more pain. You’re seeing this cycle play out three times on this chart alone. The first thing is that my preference is not always in the market. If I had to sit through the 90% drawdowns, then being always in the market might work. But that’s just not me, and it doesn’t fit well with my risk tolerance so I’m not interested.

I want a system that will get me in when the market is moving but then be very quick to stand aside. Think carefully about the market regimes you trade in. One of the mistakes many traders make in this space right now is that they’re keen to trade all the time. My approach is being patient is what makes the money, you got to wait for the right conditions and signal. In my system development, what I’m doing is filtering out a lot of the market phases that I’m just not interested in sitting through.

The next consideration is that the declines are sharp and sudden. From an all-time high, you can go straight into a 50% decline over a couple of weeks or less. The key here is your systems should be pretty nimble. We’re not going to use ultra-wide trailing stops, and trend follow, as you might in stocks, and get great returns because it just won’t work here. You’ve got to get out more quickly. Trend following and momentum works but you need to have some cleverness in how you exit because the market turns around pretty sharply. You’ve got to be careful of the whip saws when the market’s in a consolidation range. A lot of people will claw the bottom and say, “Oh, it’s over. We’re making money again.” But really, it’s just a big rally in a sideways market, so it’s easy to get tripped up by that.

These are some observations or illustrations of the pump and dump style move. Everyone knows what the terms pump and dump mean. It’s phenomenal how often it happens. People can start pushing a token out of nowhere and rallies. If you get early enough on one of the 500-odd percent rally and it skyrockets, you have a Profit take in the market, then you can make a huge amount of money quickly with this style of move. You don’t need to be fearful of the pump and dump. You just need to be nimble.

I’m entering many of the systems on breakouts, but if you have a profit target in the market to get you out, and be willing to get out before it looks like the high is in, then you can make a lot of money from moves like this. You can either sit through the drawdown and go, “Okay, well, that was a pump. It wasn’t a trend.” Or you can set the exit so you can profit from these and increase your capital as they come along. You’re not going to know the difference in many cases,  so you want to combine the concept of momentum breakouts with exiting on strength at times. And also, a nimble exit if strength collapses.

One of the interesting things is because of the amount of social chatter and social interaction that’s going on in this market, there are very short-term hype events and short-term fear events as well. In the event that the lower wicks on the chart is big, I don’t use market stop-losses. Very frequently, they just get hit and it bounces straight back up. So I’ll use a slower exit to cut my losses. I still cut my losses, but I’ll wait for the market to close. Close the tick over of the daily bar and exit then rather than exiting on a stop-loss in the market because it’s just too often do your stops just get hit.

The opposite is true of your profit targets. If you’re trading long and got these massive upper wicks then you’ve got a profit target in the market, then every so often you can blink, and you’ve got a 250% profit on a trade, and say, “Oh, profit target got hit. But now it’s way back down there.” But it happens, and it happens over and over again. So a system that takes advantage of that move is also quite powerful.

Like I’ve said a few times, there’s a huge amount of hype, and new initial coin offerings are always coming. There was a big boom in this back in 2017, which I missed. I wasn’t in the crypto market then. But here’s the danger of the hype and buying and holding. If you found the next big thing and bought it expecting it to go to the moon, you might get some initial excitement, but most projects have no future, so the token will disappear and fritter away to nothing. If you bought that expecting to make millions, then several years later, you’re left holding this dud and wondering what happened. So again, buy and hold is not so great. You need to get out when it’s clear there’s no more momentum in that market.