As of this writing, the cryptocurrency market is boring and shitty (both very technical terms).
The leading currencies of cryptocurrencies have fallen sharply from their highs, and the trend of most altcoins has drawn a “Wall Street scam” trend. The volatility of the entire market has been shattered, and the macro spillover effect has made the currency even more. The veterans of the circle stare at the front page headlines of the Bloomberg client like a dog every day.
They are now gloomy for not making timely profits at the height of their paper wealth.
More generally, speculators are looking for a bottom in the market so they can dip into Bitcoin, Ethereum, and a bunch of altcoins and achieve “freedom of wealth” once again.
Old people in the currency circle began to talk more about infectious disease experts, Federal Reserve spokespersons, and then geopolitical experts, and their mental masturbation has reached an unprecedented height.
At present, one of the more common arguments that the market has not reached the bottom is that there has not been an obvious capitulation event.
The definition of the word is not so friendly.
In general terms, capitulation is when all weak hands finally give up and sell their coins at some point in the market, and the sold coins are taken over by their smart counterparts, thus forming a market bottom. The market then rallied, with weak sellers at the bottom avoiding re-buying the cryptocurrency they sold at the bottom out of regret, disbelief or other feelings.
As far as the cryptocurrency market is concerned, the main reference point for the capitulation event is the March 2020 market crash, accompanied by a healthy recency bias, in which people place more value on recent data or experience and ignore earlier data or experience. ).
In the most extreme case, BTC/USD fell 40% in one day.
That day, I was completely numb.
Taking March 2020 as an example, the meaning of surrender is roughly as follows:
Capitulation is a massive, one-sided, excess, volatile downtrend (exacerbated by forced seller liquidation of spot and derivatives).
Its basic premise is that almost everyone who wanted to sell, and a large number of people who didn’t want to sell but were forced to sell, sold their assets.
There are more interesting microstructural arguments for market bounces in these cases (large liquidations are typically mean reversal, very attractive bidding opportunities when markets are extremely chaotic, cheap/discounted futures, favorable perpetual Swap funds, when the order book is “liquidated” and the spread is wide, the market order has a bigger impact on the price, options are priced badly, etc.), but the principle is the same – sellers are most likely to To complete the sell-off, they (forced or not) to do so is inefficient → time to rally.
It’s easy to fantasize about being a bargain hunter on a big selloff and becoming a legend (ahem), but here are a few things to consider, in no particular order:
- You may not even have the ability to try and catch a downtrend in volatility. By definition, these declines are caused by (or at least by) a chain reaction of liquidations. This means that speculators are liquidated heavily, while others try to avoid the same outcome by reducing their positions and/or increasing their collateral. At this time, the need to have cash and no position control is a luxury.
- The margin of error in estimating when the sell-off will end tends to be very large. Maybe your idea of a dip might be “right”, but you may still have to endure a 10%-20% unfavorable move in extreme cases. That’s why using leverage at this time is especially dangerous. What sometimes works is to identify a long-term “value zone” to buy, and be prepared that the price of the currency may skyrocket at any time during this period (technically, you should think of it as a currency I gave you a discount).
- Liquidity evaporates. The impact of these one-sided moves on the market is very large, so the spread will reflect this. Liquidity providers also typically quote smaller sizes. In layman’s terms, this makes the order book very “thin”, i.e. the fill price of market orders will be worse, and the price impact of market orders will be greater.
- As we will discuss when identifying other forms of capitulation, buying at the bottom of an excess decline is not a prerequisite for great returns. While there are better arguments for this, consider the following: A time of extreme pessimism (in terms of returns) for all may be a bottom to buy Bitcoin or Ethereum. It’s often months after the bottom that produces jaw-dropping returns. A sense of the bottom certainly helps with a good time to buy low-priced altcoins, but it’s not necessary (especially given the cost of getting wrong on your knife’s edge).
We have effectively learned a form of surrender through the preceding. It’s essentially extreme downside volatility and all the knock-on effects that come with it. In hindsight we all take it all so well, but in practice it’s usually a lot harder, especially if you’re before the big slump, not after the panic.
My personal opinion is that it’s quite fun to catch a big dip when it occurs, but more often the price will drop back and retest the extreme area of the bottom. It also usually comes in a more orderly and tradable way. You just have to look at the BTC/USD chart to spot the big liquidation-driven plunge and you’ll see that the price has given you more than one trade at or near the same extreme range. But you have to be clear, this mainly applies to trending markets.
That kind of surrender alone leaves us with a rather bleak outlook. Basically, wait until all the big slumps and some of the scariest altcoins you’ve ever seen go to zero, you buy when liquidation stops and everything is broken (derivatives pricing, the exchange itself, etc.), praying hands The coin is not going to experience another crash and hold the coin for a few weeks while the volatility is low for the ensuing rise (if you are correct).
Thankfully, I think there are other forms of surrender that are worth noting.
Speculation exists on both sides of volatility.
That is to say, speculators will be kicked out of the market after playing in big fluctuations, but they may also lose a little bit when the market repeatedly tries to break through or dip, and eventually become victims of being cut by a thousand cuts.
Let us briefly explain the difference between this trend and range.
Everyone loves the cryptocurrency trend. It’s even better when almost the entire asset class is trending. Any arbitrary trend line and future breakable pressure level becomes fair game for momentum trading, and more often than not this setup is successful.
Most importantly, this outcome is not the product of some advantage of the setting itself, but of general market conditions.
The problem arises when traders who get exercised in weeks and months of uptrending markets and are rewarded for chasing breakouts but apply the same strategy to range-bound markets. As the name suggests, range-bound situations indicate a lower probability of breakouts and follow-throughs, and conversely, a breakout leads to an increased probability of failure.
These situations become fairly apparent on all time frames, but for swing traders on longer time frames, they may be forced to face the reality that they are not for weeks or maybe even months. Trigger settings.
They may be uncomfortable with this new reality, or simply by failing to recognize it, speculators who are accustomed to trending conditions are slowly getting beaten up by the market as their usual setup no longer offers an edge.
However, the capitulation in low volatility is not just technical, it is psychological as well.
Speculators who are accustomed to trading many assets several times a day get bored and lose interest. Many of them joined cryptocurrencies because of its trend and volatility, without which they would either sell their coins and give up their trades, or go elsewhere to trade stocks and forex.
In summary, low volatility capitulation is when people who trade as trends are unable to adapt to a situation where everything is always up and down, and waste their capital trading a trend that doesn’t exist, and/or when cryptocurrencies are no longer “hot” At that time, they were no longer keen on trading, but started to use Douyin.
The market can take your money all at once at one end of the range, or it can take your money very slowly at the other end, but the end result is the same.
A particularly brutal combination is when they are combined, i.e. high volatility big slump coupled with zero volatility.
November 2018, March 2020 and May 2021 are decent examples of this.
First, the market quickly takes your money with a straight slump, and the market doesn’t have a decent rally for people to sell. Second, even if you survive the big crash, poor market conditions (especially the absence of volatility) make it nearly impossible for you to earn back the money or coins you lost in any meaningful way. Third, because you’re still beset by a massive drawdown on paper and an all-time high net worth, you decide to sell on a rally (and likely advance/sell after a bottom), even if that means at the start of an uptrend time to sell.
It’s not fun.
There are other forms of capitulation, and these are less relevant to trading, for example, crypto influencers and celebrities who are active at the top of the bull market have started to stop tweeting or tweeting and pretending it’s a nightmare, and the crypto-influencers are celebrating the Chinese New Year Or start getting embarrassed on a blind date mentioning cryptocurrencies, crypto funds losing money and layoffs at major crypto businesses, mainstream news forever looking at cryptocurrencies, and how the bubble burst, Saylor started buying Ethereum, etc.
I’ve written a lengthy discussion of surrender, but here’s some additional thinking.
What is my purpose in writing this article?
Well, everyone emphasizes the importance of surviving in cryptocurrencies and they are right.
The point of this post is to outline to some extent what this actually means.
- Don’t try to risk your ability to take risks. Simply put, high leverage and bad collateral can greatly increase your chances of failure. At least don’t be a forced seller. If you want to optimize your living conditions, get ready to buy the dips and start buying the dips when all is broken.
- Adjust your trades to market conditions. Sometimes that means no deals, and maybe that can go on for weeks, maybe even months. If you have to ask yourself if you have an edge when your finger is hovering over the buy/sell button, maybe you probably don’t. Tried to keep a diary and noticed that the previously confirmed pranks were starting to be slapped in the face.
- There is capitulation on both ends of volatility. Just because you survived the big slump, doesn’t mean you’ll get an immediate return from the trend. The absence of a big selloff doesn’t mean the market won’t bottom.
- You don’t need to seize or trade capitulation opportunities in order to be “early”. You can buy and build higher time frames after a market trend emerges, assuming you can afford a higher buy price. For example, buy Bitcoin in 2020 when it pulls back to $8,000, or even tops $12,000, even though the capitulation happened much lower than that.
The last thing you need to pay attention to is.
This framework is mainly for Bitcoin and Ethereum.
If you’re a long-term “bullish” cryptocurrency, Bitcoin and Ethereum also set new all-time highs and gradually form higher prices.
Assuming cryptocurrencies never go to zero, the odds of them surviving and hitting new all-time highs are very high.
For most altcoins, especially junk coins after the cycle hype, the situation may be different.
Even an altcoin that has experienced several boom periods generally has a marked downtrend in price against Bitcoin and Ethereum on longer time frames.
If you are holding a junk coin, capitulation will also occur, but the probability of its price recovering and making new highs in the next cycle is greatly reduced.
The ending of this article is terrible, but I’m already okay with it.
Reading a bunch of non-nutritious content on Twitter all day has greatly lowered my already mediocre IQ.
I’ll try to write more, at least for myself.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-should-we-do-if-there-is-a-capitulation-event-in-the-cryptocurrency-market/
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